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Insurance companies bleeding, yet no decision on increasing FDI limit!

The delay in clearing the proposal to increase the limit for foreign equity in insurance companies to 49 per cent is costing the country dear. A similar move in regard to civil aviation has evoked a lot of interest on the part of foreign airlines to invest in India.

In the 12 years after opening up the insurance sector, a large number of players have entered the business. Today, there are 24 life insurance companies and 27 general insurance companies. Though several general insurance companies have become viable, life insurance companies are bleeding; a few, which entered the Indian market with a lot of expectation, like New York Life and ING have quit. HSBC Life and Aviva are likely to follow suit.

Padma Bhushan R Thyagarajan (RT), an expert on insurance, estimates the total loss suffered by life insurance companies at around Rs 25,000 crore. At the present rate, RT expects these companies to suffer an additional loss of Rs 20,000 crore in the next few years. This may trigger more foreign companies to quit.

It is baffling that a government so keen to attract foreign direct investment should be unconcerned over inviting foreign insurance companies to take care of this burden. There has been tremendous interest on the part of foreign insurance majors to enter India and tap its huge potential, especially in the context of the very low penetration and consciousness for insurance.  The opposition from BJP’s Yashwant Sinha and S Gurumurthy is indeed sad. A decade ago, while BJP was in power, they wanted to leverage the power to limit investment in insurance to counter some of the unhelpful postures of WTO. A decade later, this posturing does not make sense.

 

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