FDI will increase in insurance sector by US$ 0.46 billion

The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has projected that foreign direct investment (FDIs) will increase in insurance sector by US$ 0.46 billion in next 2 years and likely to touch US$ 0.96 billion as it is still regulated.

A Paper on FDIís Prospects in Insurance Sector brought out by the ASSOCHAM says that currently the total insurance market in India is about US$ 30 billion, in which the element of FDIís is US$ 0.5 billion. This is 1.6% of total insurance business in India.

Despite, insurance being a highly regulated sector, however, in the first five months of current calendar, i.e. between January to May, it could attract FDIís of US$ 217.97 million which by any standard is not too insignificant.

Releasing the Paper, the ASSOCHAM President, Mr. Sajjan Jindal said that if the insurance sector is opened up to an extent of 49% for FDIís, in next 2 years, i.e. by 2010, the Chamber expects that FDIís contribution to insurance business would touch nearly US$ 2 billion. Currently, only 26% of FDIís are permitted in insurance sector.

The reason for this is that the domestic insurance sector has been growing at an average speed of nearly 200% and that is why the ASSOCHAM is of the view that by 2012, the total insurance business would touch US$ 60 billion size.

In the US$ 30 billion insurance business, nearly 29 insurance companies are taking part of which 14 are in private life insurance sector, 9 private non-life insurance sector and 6 public sector insurance companies. Mr. Jindal said that in the life insurance sector particularly on FDIís front, the growth that has taken between 2006 and 2007 is estimated to be around 270%. This itself speaks the significance and importance, investors are attaching to both life insurance and non-life insurance sector.

The ASSOCHAM expects that this growth momentum will continue and it could further accelerate if the FDIís ceiling in insurance sector is widened and broadbased.

Opening the FDI in the insurance sector would be good for the consumers, in a lot of ways. Increasing FDI limit would affect a lot of industries in a positive way and that we could even do without the FDI in many other sectors for some for example in real estate.

Indiaís insurance market lags behind other economies in the baseline measure of insurance penetration. At only 3.1%, India is well behind the 12.5% for the UK, 10.5% for Japan, 10.3% for Korea and 9.2% for the US. Currently, FDI represents only Rs.827 core of the Rs.3179 crore capitalizations of private life insurance companies.

FDI in insurance would increase the penetration of insurance in India, where the penetration of insurance is abysmally low with insurance premium at about 3% of GDP against about 8% global average. This would be better through marketing effort by MNCs, better product innovation, consumer education etc.

FDI can meet Indiaís long term capital requirements to fund the building of infrastructures. Infrastructure or the lack of it has been the brake, which have hindered the leap of the Indian economy. Despite shortcomings, Indian economy has come a long way but every industry leader would crib at the infrastructure bottlenecks that they have face everyday in their effort for growth.

Insurance sector has the capability of raising long term capital from the masses as it is the only avenue where people put in money for as long as 30 years even more. An increase in FDI in insurance would indirectly be a boon for the Indian economy, the investments not withstanding but by making more people invest in long term funds to fuel the growth of the Indian economy.

(This is Press Release of Assocham)


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