Is higher FDI limit in insurance a threat for public sector insurers?
The massive potential in the Indian life and non-life insurance sector has encouraged large private financial services companies to form joint ventures with global insurers.
Written By ZRG|Last Updated: Jul 05, 2013, 12:47 PM IST|Source: Exclusive
Siddharth Tak / Zee Research Group/ DelhiThe huge probability of the Insurance Laws (Amendment) Bill getting an approval in the parliament during the winter session has started to increase the anxiety levels of Public Sector Insurers as they are already struggling to arrest the decline in their market share. Recently, Cabinet has cleared an important decision to increase Foreign Direct Investments (FDI) limit from 26 percent, capped in 1999, up to 49 percent in Indian insurance companies.
During the last decade (2001-02 to 2011-12), the market share of the public sector insurers has decreased due to new entrants in the private sector. A Zee Research Group (ZRG) analysis reveals that Life insurance Corporation (LIC) has been struggling to maintain the market share in segments, life and non life, since 1999, when 26 percent FDI was allowed in the insurance sector.
Public sector insurer, LIC, in its bread and butter segment (Life segment) has lost a significant market share from 98.65 percent in 2001-02 to 71.40 percent in 2011-12. On the other hand, during the corresponding period, the market share of private sector life insurers has increased from 1.35 percent to 28.6 percent. With regards to the market share of Public sector insurer in the non-life segment has decreased to 58.46 percent in 2011-12 from 95.91 percent in 2001-02. The massive potential in the Indian life and non-life insurance sector has encouraged large private financial services companies to form joint ventures with global insurers. Some of the prominent private players of this sector include the names of Bajaj Allianz, Birla Sunlife, ICICI Prudential, Tata AIG, HDFC Standard Life, Reliance Life, Max Life and so on.
On the declining market share of public sector insurers, S B Mathur, former LIC Chairman, opined, “Something has to happen when 24 private players are doing business in the insurance sector. Increase in FDI limit can lead to greater penetration of retail market. Consequently, the general and non-life public sectors insurers could feel the rub-off effect mainly due to the cut throat competition from the private players in the country.”
Mathur’s thought got an endorsement from N S R Chandraprasad, Chairman and Managing Director, National Insurance Company (NIC), who averred, “FDI in insurance will be the threat for the public sector companies because the growth in the numbers of private players will affect the market share of public sector insurers in the country.”
By clicking “Accept All Cookies”, you agree to the storing of cookies on your device to enhance site navigation, analyze site usage, and assist in our marketing efforts.
Cookies Setting
By clicking “Accept All Cookies”, you agree to the storing of cookies on your device and the processing of information obtained via those cookies (including about your preferences, device and online activity) by us and our commercial partners to enhance site navigation, personalise ads, analyze site usage, and assist in our marketing efforts. More information can be found in our Cookies and Privacy Policy. You can amend your cookie settings to reject non-essential cookies by clicking Cookie Settings below.
Manage Consent Preferences
Strictly Necessary Cookies
These cookies are necessary for the website to function and cannot be switched off in our systems. They are usually only set in response to actions made by you which amount to a request for services, such as setting your privacy preferences, logging in or filling in forms. You can set your browser to block or alert you about these cookies, but some parts of the site will not then work or you may not be able to login.
Functional Cookies
These cookies enable the website to provide enhanced functionality and personalisation. They may be set by us or by third party providers whose services we have added to our pages. If you do not allow these cookies then some or all of these services may not function properly.
Targeting Cookies
These cookies may be set through our site by our advertising partners. They may be used by those companies to build a profile of your interests and show you relevant adverts on other sites. They are also used to limit the number of times you see an advert as well as help measure the effectiveness of an advertising campaign. They do not store directly personal information, but are based on uniquely identifying your browser and internet device. If you do not allow these cookies, you will experience less targeted advertising.
Performance Cookies
These cookies allow us to count visits and traffic sources so we can measure and improve the performance of our site. They help us to know which pages are the most and least popular and see how visitors move around the site. All information these cookies collect is aggregated and therefore anonymous. If you do not allow these cookies we may not know when you have visited our site, and may not be able to monitor its performance.