The 74% improved foreign direct investment window and regulatory listing boosts received a lukewarm response, although the insurance industry is expected to see renewed investment activity on these fronts in the coming months.
This was also recently flagged by new IRDAI Chairman Debasish Panda who said the regulator is reviewing investment standards for the sector to attract more investment and deepen market penetration. insurance in the country.
The key measures in this framework would be listing as well as an increase in foreign direct investment.
“This can be done through measures such as rating insurance companies, which would also allow for greater transparency and disclosure,” he said, noting that with LIC rating, almost 60% of the market would be quoted.
“It brings a lot of transparency, disclosures and market access to raise capital. This will help them grow and our ultimate goal of deepening insurance penetration will come true,” Panda said.
Experts point out that most insurers continue to have good solvency ratios despite the Covid-19 pandemic leading to increased claims. However, they would need capital for business expansion.
Higher FDI limits will attract more foreign capital, which will help increase insurance penetration in India, LIC said in its DRHP.
Higher FDI limits will also allow more global insurance companies to enter India and bring their best practices, thereby increasing competition and better pricing of insurance products, as per the LIC document.
“The increased cap has several other benefits, including: (1) due to better availability of more capital than before, insurance companies can increase the momentum on business growth and diversification of their portfolio and (2) more options available to consumers with increased competition, which also leads to better deals for them,” he added.
This is crucial for a country like India, which is underinsured, compared to more developed economies.
While the penetration of the life insurance sector increased from 2.15% in 2001-2002 to 3.20% in 2020-2021, the penetration of non-life insurance increased from 0.56% to 1.00% over the same period.
Insurance density (ratio of US dollar premium to total population) in India remained the same in 2019-20 and 2020-21 at the $78 level, according to IRDAI’s annual report. Improved IED cap
However, nearly a year after the government authorized an increase in foreign direct investment of up to 74% in insurance companies, only a few insurers have used this window to increase their stake in their Indian businesses.
This includes Ageas Federal Insurance and Future Generali insurance joint ventures.
Shailaja Lall, Partner, Insurance, Shardul Amarchand Mangaldas & Co, said the insurance market in India is changing and maturing rapidly.
“The 74% FDI cap for insurance companies is also arousing his interest. The good thing is that there are no conditionalities, like the Indian ownership and control requirement, which existed before.
“Many companies are waiting and watching. Some are also in negotiations to review their own joint venture contract terms,” she said, adding that this was also the number of companies wishing to consolidate their operations in India. To be fair, a number of insurers have used the strengthened 49% cap for FDI. Many insurance intermediaries and brokers such as Willis Towers Watson, Marsh and Gallagher have also used the 100% IDE window for their Indian businesses.
IRDAI data indicates that compared to the cap of 49% of FDI in the insurance sector, the average foreign investment in Indian life insurers was 35.44% as of March 31, 2021. It was 27.68% for private sector non-life insurers and 29.38% cent for private autonomous health insurers during the same period.
Some streamlining of processes and approvals is expected to allow for smoother and faster investments. However, a general 100% increase in the FDI ceiling for the sector may not be feasible.
G Srinivasan, director of the National Insurance Academy, said the higher FDI window of 74% will lead to more capital in the insurance industry, which will allow for greater expansion and penetration.
“However, this will only happen gradually, and it is a call that must be taken by every insurer on whether or not to increase FDI,” he said, adding that it could also be necessary to review the approval processes so that they can pass more quickly.
Lall also said processes need to be streamlined for faster approvals. “For example, any change in ownership greater than 1% must be approved by IRDAI and can take up to three months. It can take a long time for a private equity investor,” she said.
Also, from a regulatory perspective, foreign investors will assess whether they want to be in a regime where there may be a lot of unforeseen regulatory changes, which may impact their investment and control, he said. she declared. An industry source noted that many companies are considering the higher FDI window. But they had put their plan on hold as the government left the leadership post vacant for around 10 months after IRDAI chief SC Khuntia ended his term on May 6, 2021.
IRDAI has been pushing insurers to go public for some time now. But only a few companies have done so. This includes HDFC Life, ICICI Life Insurance and ICICI Lombard General Insurance, SBI Life Insurance, New India Assurance and the latest being Star Health and Allied Insurance.
While state-run life insurance giant LIC is expected to make its public debut this quarter, most other insurers have no such plans just yet.
“Listing is in the interest of all stakeholders and will lead to more governance and transparency. It will also raise the profile of the industry and increase insurance penetration,” Srinivasan said, but added that the listing decision will be up to the promoters and board of directors of each insurer.
The head of an insurance company also agreed and said the decision on when to list is up to shareholders.
“But as an insurance company, we are very open with disclosures. The idea behind the listing is to bring more transparency and that is what we are already doing through our regular disclosures,” he said. he said, adding that with the arrival of LIC’s mega initial public offering, more companies may consider listing on exchanges.
Lall said with so much private equity investment in insurance companies, there could be more listing cases when they choose to exit.
April 24, 2022