Topics: Investment, Insurance, Economics Pages: 5 (1645 words) Published: March 15, 2013
Insurance sector in india
FDI Flows in Insurance Sector
This Paper mainly focus on the Foreign Direct Investment in the Insurance sector in India. India has been rapidly adapting to the liberalization, and FDI is encouraged in almost all the economic activities. FDI inflow in the country is increasing. India has tremendous potential for absorbing greater flow of FDI in the coming years. The Insurance sector in India has a great potential even during the downtrend and FDI flow is expected to rise in the mere future. The performance of the Insurance Regulatory and Development Authority (IRDA) Act by the Indian Parliament in 1999 opened the entry for participation of private insurance companies and a limited participation of foreign insurance companies through joint ventures with Indian company. Life Insuranceis the fastest growing sectorin Indiasince 2000 as Government allowed Private players and FDI up to 26%. Keywords: FDI in insurance sector, Insurance Regulations, FDI advantages, FDI Disadvantages, Life Insurance market, FDI cap on Insurance. Introduction:

The insurance sector has been a fast developing sector with substantial revenue growth in the non-life insurance market, but in spite of its huge population, India only accounts for 3.4% of the Asia-Pacific general insurance market's value. The cap on foreign companies equity stake in insurance joint venture is 26%, but is expected to rise to 49%. The investment pattern with regard to foreign direct investment (FDI) and inflows from non-resident Indians remains resilient and FDI inflows into the country grew by an impressive 145% between fiscal 2006 and 2007 and by a respectable 46.6% between fiscal 2007 and 2008. However, owing to the economic downturn, the growth in FDI inflows in fiscal 2009 slowed to 18.6% from the previous fiscal. Foreign investment, in addition to technological improvement and expertise, brings with it a plenty of risks. An increase in the size of foreign holding in the insurance sector will certainly expose the country to risks. At the same time, it is important to recognize that FDI in Insurance can address several issues pertaining to the sector such as encouraging development of innovative financial products, improving the efficiency of the Insurance sector. Size of the Insurance sector in India:

Insurance is a US$41-billion industry in India, and Increased by 36% in 2006-07 over the previous year. Life Insurance-US$35 billion industry with US$24 billion accounting for First Year Premium. Non-Life Insurance-US$5.6-billion industry. Competition in the Insurance Sector:

Even after the liberalization of the insurance sector, the public sector insurance companies continue to dictate the insurance market, enjoying over 90 per cent of the market share. In fact, the LIC, which is the only public sector life insurer, enjoys over 98 per cent of the market share in Life insurance. The Annual Report of the IRDA states that, 9 out of the 12 private companies in life insurance suffered losses in 2002-03. The cumulative loss of the private life insurers amounted to Rs. 38633 lakhs compared to the Rs.9620 crores surplus (after tax) earned by the LIC. Not only the public sector insurance companies more profitable than the private ones, the private insurer which is most profitable (Reliance) is one which has no foreign equity. If profitability is taken to be an important indicator of efficiency, it is clear that the case for further hike in the FDI cap in the insurance sector cannot be made on efficiency grounds. Insurance Sector in India poised for tremendous expansion:

RDA has also notified Micro Insurance regulations facilitating insurers to tap the potential of rural markets. It is evidenced that micro insurance would facilitate access of insurance to rural and remote areas. Micro Insurance being an integral part of overall insurance system, attempts to offer the target specific insurance products at a moderately lower cost, for a lower...
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