The life insurance industry is likely to attract inflows of Rs. 40,000 crore to Rs. 60,000 in the next five years due to the hike in FDI limit, states SBI in its research report titled ‘Ecowrap’.
With the new Insurance Amendment Bill paving way for 49% foreign direct investment (FDI) in the insurance sector, the life insurance industry is likely to attract huge investments from overseas players. SBI, in its research report titled ‘Ecowrap’, states that the foreign direct investment limit hike in insurance could result in capital inflows of over Rs. 60,000 crore over the next five years.
“The FDI limit hike could result in inflows of Rs. 40,000 crore to Rs. 60,000 crore over five years and immediate inflows of around Rs. 20,000 crore,” states the report. The insurance industry over the last 14 years has attracted over Rs. 33,749 crore of capital and over the next 5-10 years it requires fresh capital to fund its growth and expansion, the report said.
The report stressed the importance of capital infusion in private life insurance sector. It said, "Most of the private players have accumulated losses, not due to inefficiency but due to the nature of this business. For further expansion, the insurer needs capital, which is a challenging task for the promoters to infuse.”
Life insurance sector recorded a decline in penetration for the fourth consecutive year. The life insurance sector’s penetration level stood at 3.1% in FY 2013-14 compared to 3.2% in FY 2012-13, 3.40% in FY 2011-12 and 4.60% in FY 2010-11. Similarly, insurance density stood at $41 in FY 2013-14 against $42.7 in FY 2012-13. The insurance density was at $53 in FY 2012-13. The measure of insurance penetration and density reflects the level of development of the sector.
Experts believe that the FDI limit hike can help improve insurance penetration and insurance density in the country.