The Hindu Business Line : One for the image

Given the low risk appetite of foreign insurance companies now and a fractious Parliament, the insurance reform proposals are likely to remain only on paper.

Compulsions of coalition arithmetic had stayed the UPA Government’s hand from any legislative reform in the insurance sector with the Left parties having long opposed any attempt at liberalisation of ownership norms. However, the Government evidently feels less constrained now in pushing ahead after the Left’s withdrawal of support over the Indo-US nuclear deal. It will however be a while before the latest legislative initiatives become a reality. The procedura l formalities are long and arduous and the fractious atmosphere in Parliament is hardly conducive to any legislative business, leave alone one as controversial as this. With elections just round the corner, the Government will be happy to refurbish its reformist credentials among the middle class even if cannot secure the passage of these Bills into law.

Even without such procedural constraints, the proposals — hiking the ceiling limit on foreign ownership in domestic insurance enterprises and enabling Government owned general insurance companies to tap the capital market — are likely to remain only on paper for some time. Financial service enterprises from the West are definitely low on both business confidence and appetite for emerging market investment even assuming some of them may emerge unscathed from the credit and housing assets related bubbles. They are not going to rush into investing in the Indian market any time soon. With the domestic and overseas capital markets quite sluggish, public sector general insurance companies may find the process of raising equity resources quite daunting. Yet the present predicament of foreign insurance companies is no justification for preventing them from raising their stake in local outfits in tune with their strategic vision. Except in the rarest of the rare cases, limits on foreign ownership do not make any sense.

The Government’s proposal for altering the disposition of actuarial surpluses of Life Insurance Corporation is likely to prove more controversial inasmuch as it seeks to reduce the amount hitherto available to its policyholders. From a figure of 95 per cent of such surpluses compulsorily redistributed as bonuses to its policyholders, the proposed amendment seeks to arm the Government with discretion to peg it as low as 90 per cent. This would be harsh on such of those policyholders who have entered into long term insurance contracts with LIC on the expectation, aided no doubt by marketing communication by the Corporation and its own field staff, that a higher percentage of surplus would be redistributed. The Government should at least consider exempting “in-force” policies from such a stipulation.

Related Stories:
Insurance reforms gain pace; FDI cap to be hiked to 49%
Cabinet okays hike in FDI in insurance to 49 pc
Insurance players now see scope for more FDI

More Stories on : Editorial | Insurance | Economy

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

Stories in this Section
One for the image

Antulay’s shenanigans

The Makaibari legend

Needed better, not more, regulation

Doing things the right way

Credit flow to the MSE sector needs to be scaled up

Reverse Repo Rate

Corporate governance