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  • Insurance Insurers cheer 26 to 49 move

    Insurers cheer 26 to 49 move

    Experts expect growth in other key sectors like manufacturing, infrastructure and increase in limit of section 80 C to give a fillip to insurance industry.
    Nishant Patnaik Jul 10, 2014

    Experts expect growth in other key sectors like manufacturing, infrastructure and increase in limit of section 80 C to give a fillip to insurance industry.

    With Union Finance Minister Arun Jaitley’s announcement of hike in limit of foreign direct investment (FDI) in insurance sector from 26% to 49% in his union budget speech, the long pending demand of insurers has finally come true. The life insurers have welcomed the move and are of the view that it will increase the capital adequacy of the sector.

    However, the 49% FDI will be effective after parliament passes the insurance amendment bill.

    During the budget, Jaitley said that the Insurance Law (Amendment) bill which is pending from a very long time will be tabled in the parliament soon. He said the benefits of insurance in India have not reached a large section of the people as insurance penetration and density are very low. He expressed his resolve to address these issues through the bill.

    R Chandrasekaran, Secretary General of General Insurance Council (GIC) expects the 26-49 move will boost insurance sector. He said, “Raising FDI limit will infuse the much needed capital in the industry. Secondly, the finance minister has signaled major reforms in other sectors like manufacturing and infrastructure which will have a positive impact on the growth of non-life business in India.”

    Sandeep Ghosh, Managing Director and Chief Executive Officer, Bharti Axa Life Insurance, “The announcements by the finance minister as part of his budget speech have been in line with what the Insurance Industry has been asking for from the new Government. We welcome the move to increase the composite FDI in insurance to 49%. It is a significant step in the right direction. However, we need to wait for the Insurance Bill to be presented and passed in the parliament for this to become a reality and yield the expected results. The move to increase the 80C investment cap to Rs. 1.5 lakh from the current Rs. 1 lakh will definitely give a boost to the Insurance Industry. It will encourage people to invest in long term savings instruments like life insurance.”

    Sunil Sharma, Chief Actuary Kotak Old Mutual Life Insurance said, “Increasing FDI from 26% to 49% will lead to significant amount of foreign investments into insurance sector in India. We expect about 100 life and non-life insurance companies to serve market of our size. It would lead a 25-30 new insurers entering the market and generate lot of employment opportunities for Indians.”

    However, there is no clarity on voting rights and management control.

    “Though allowing 49% FDI is a good move, the finance minister has not clearly explained the voting right and management control. If you go through the budget speech, the minister said that management would be controlled through FIPB route. I think it will deter foreign investors to put money in Indian insurance firms. However, we need some more clarity on this matter,” says a senior official of a private life insurance.

    “As of now, industry follows a practice in which foreign partner gives technology support. The foreign partners exercises major control over company’s management even now whereas Indian partner looks after distribution and marketing. Hike in FDI with Indian management control would deter foreign partner to infuse capital,” another senior official of a joint ventured insurance firm.

    Meanwhile, the finance minister has announced to remove service tax on micro-insurance policies. “Removing the service tax for micro-insurance shall provide relief to the underprivileged section of the society in getting insurance at lower price without much burden on the exchequer,” Sharma said.

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