The Hindu Business Line : `Hike in insurance FDI cap will see more new players'

Fitch findings
Private players offer wider range, do better marketing.
Bancassurance to contribute 25 pc of business.
Market is small despite strong growth

Mumbai , March 13

The increase in the foreign direct investment (FDI) limit to 49 per cent in the insurance sector would see the entry of several new players, says a report by Fitch ratings.

According to the report, "The expected increase in the FDI limit to 49 per cent will allow a fresh infusion of capital into the insurance sector such as is regularly needed in the initial stages of a business. Several new players are expected to enter the market in the next few years."

The report is positive about the contribution of the private sector in rapidly capturing the market share at the expense of the public sector. It said: "Private companies are able to do this because they offer greater choice in terms of products and services. They also make a concerted effort to increase consumer awareness about the benefits and importance of insurance via vigorous marketing."

The report estimates the contribution of bancassurance to be 20-25 per cent of the sales in the life and non-life segments.

Fitch also indicates that the Indian insurance market is still quite small despite strong growth and improving penetration levels. The total life and non-life premiums were equivalent to 3.17 per cent of the GDP in 2004 compared to 8.27 in the US, 7.89 per cent in Europe (western, central and eastern) and 7.4 per cent in Asia as a whole.

Capital norms

In terms of capital norms, Insurance Regulatory and Development Authority (IRDA) currently seeks to ensure insurance companies maintain a 150 per cent solvency margin ratio. Fitch believes IRDA will have to eventually deploy a more risk-based approach to solvency norms and capital requirements as the private sector matures.

With the detarrifing of fire and engineering lines, Fitch says rates are likely to fall in the rush to capture the business. However, detarrifing will eventually benefit the market. "With the lifting of tariffs, risk will come to be better profiled and priced, which in turn will lead to the widening of product choice in the non-life market, and will likely to also lead to policies that are custom-designed to the buyer's requirements," said the report.

Fitch also stresses on the importance of data in terms of pricing. Improved information collection and dissemination of data will help the industry in arriving at proper pricing of products after the abolition of tariffs.

More Stories on : Foreign Direct Investment | Insurance

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Wipro remote centre for Aviva

Funds buying props up BoB

RBI panel for cap on capital market exposure of NBFCs

LIC's Bima Gold well received

PSU general insurers book big trading profits

Royal Sundaram, BASIX covers for SHGs

`Hike in insurance FDI cap will see more new players'

Allahabad Bank bond issue fully subscribed

Andhra Bank opens new branch at Kalina

Ex-PNB chief to head IIFCL