Insurance Reforms in India

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Insurance Reforms in India: FDI Cap to relax to 49 Percent
15 September, 2009, Business News - No Comment
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The Indian Government is keen on getting the current Foreign Direct Investment (FDI) cap raised from 26% so as to enable foreign investors up their stakes in insuranceorganisations in India. While the Insurance Regulatory Authority of India (IRDA) has been holding the FDI cap steady at 26%, there have been lobbying from various stake holders in the insurance industry to increase the scope of FDI to 49% for the past few years now. Proposals to increase foreign companies’ stakes in Indian Insurance companies have been met with stiff resistance from the Left Wing parties who oppose a virtual “sell out” of Indian Insurance industry to foreign organisations. However, the move to increase FDI cap to 49% is widely expected in the industry, which has undergone major reforms over the past few years. While Life Insurance Corporation of India (LIC), the Public Sector Undertaking (PSU), held a monopoly over insurance products in India, the opening up of the sector to private players and to foreign investors gave rise to a flurry of activity in an industry that has enormous scopes for growth in an under-insured country. Multinational behemoths in Insurance have tied up with their Indian partners – Prudential has joined hands with ICICI, AIG has teamed up with TATA, Allianz with Bajaj, Sun with Birla – as they have been trying to gain market share. With almost 20 insurance companies in operation in India, Insurance premiums of private sectors rose from Rs 272.6 crores in 2001 – 02 to Rs 51,561.4 crores for the year 2007 – 08. LIC still holds the king’s share with 149,790 crores of premiums collected in 2007 – 08, almost three times the total premium charged by all private organisations put together. While rural insurance is an area that is yet to be exploited, a 10.3 percent service tax charged is considered detrimental to growth of the rural insurance market. Further, the Government’s Universal Health Insurance scheme exempts public sector organisations from service tax, which private players allege, rigs the playing field in favour or PSU’s. Industry leaders are also pressurising the government to waive the service tax that would facilitate growth of insurance in rural India. The current relaxation of FDI cap is expected to bring in over Rs 10,000 crores into India through increased foreign participation in the industry, with the passing of the Insurance Amendment Bill. While insurance reforms still have a long way to go as represented by private insurance players, the increase in FDI cap to 49% would be an important milestone that private insurance players are looking forward towards Event| Insurance Sector Reforms in India: Challenges and Opportunities|

Begins| August 18, 2006|
| Ends| August 19, 2006|
| Papers| July 15, 2006|
| Ab.| Insurance Reforms|
Country| India|
| State| Andhra Pradesh|
| City| Hyderabad|
| | .|
Category| Business: Banking|
| Category 2| Education: Higher_Education|
| Category 3| Business: Insurance|
| Exhibits| |
Organization| |
| Contact| Dr.D.Chennappa Seminar Director Department of Commerce Nizam College- Hyderabad, AP|
Venue| Seminar Hall|
Description| Insurance in India started without any regulations in the nineteenth century. It was a typical story of a colonial era: a few British insurance companies dominating the market serving mostly large urban centers. After the independence, the Life Insurance Company was nationalized in 1956, and then the general insurance business was nationalized in 1972. Only in 1999 private insurance companies were allowed back into the business of insurance with a maximum of 26 per cent of foreign holding (World Bank Economic Review 2000). The entry of the State Bank of India with its proposal of bank assurance...
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