The Hindu Business Line : FDI in insurance

The objection by the entities allergic to foreign investment and the hesitation of the pro-liberal government to raise the share of FDI in insurance from 26 per cent, which was fixed 15 years ago, to 49 per cent now is untenable and, therefore, unacceptable on the basis of sound financial norms and economic policies.

The solvency ratio prescribed by the Insurance Regulatory and Development Authority (IRDA) is a constraint on the insurance companies to increase their business and thereby spread the risk. The Indian counterparts of foreign companies are not keen to infuse substantial amounts of capital, particularly when the insurance companies, even after 10 years of operation, are struggling to break even.

The country has lived with foreign banks over a century and foreign NBFCs for over a decade without any damage or threat to Indian banks, both in the public sector and private sector. Insurance is a high-risk business, prone to huge losses from unexpected events. Foreign investments will strengthen private insurance companies.

Of course, the government will certainly have to put in place the necessary safeguards to protect the country and policy-holders from any undesirable outcome of the foreign investment which, of course, is a remote possibility. It is necessary for the players in the sector and policymakers to shed their concerns on foreign invasion of the financial sector and, instead, acquire expertise on risk management and marketing from foreign insurers.

S. Arunajatesan Chennai

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