Life insurers bat for 100 pc foreign investment in sector via automatic route

Life insurers have sought 100 per cent foreign direct investment (FDI) limit in the sector through the automatic route, which can help the sector attract capital of Rs 40,000-60,000 crore.

India has received nearly Rs 30,000 crore worth of FDI in the private sector insurance firms since 2015, when the government had increased FDI limit from 26 per cent to 49 per cent.

In a detailed presentation to the Insurance Regulatory and Development Authority of India (Irdai), life insurance companies pitched for 100 per cent FDI limit in the sector.

Investment under the automatic route does not require prior approval from the government.

The insurance regulator on December 2 invited views from all the companies to increase the FDI limit in the sector and asked for their feedback by December 10.

The subject matter was further discussed in the Life Insurance Council meeting on December 13.

"The government will examine suggestions of further opening of FDI in aviation, media (animation, visual, gaming and comic) and insurance sectors in consultations with all the stakeholders," the Irdai said.

The life insurers said the government should allow both the options FDI and FII (foreign institutional investors) in opening the insurance sector to 100 per cent via the automatic route.

This will give the insurance companies an option to decide on which route they would like to take (FDI or FII or a combination of the two), to increase the limit to 100 per cent, the insurers said in the letter, adding there should be no conditions for the foreign investors for moving from 49 per cent to 100 per cent, such as restriction on voting rights and India ownership, among others.

If the limit is increased from 51 per cent to 100 per cent, another Rs 40,000- 60,000 crore of inflows are attainable, based on current valuations.

"Increase in FDI will help the country better technical know-how, better insurance penetration, and better training of stakeholders, etc. It will also help in higher settlement claims, better persistency and early claim reduction," the Irdai said.

Among others, the increase in foreign stake will also help the private life insurance sector increase its market share and help in bringing more technical expertise on risk-based capital which developed markets have already implemented.

More capital injection will help in expanding the business that will further help in generating more employment, thereby addressing the employment issues.

"It will also help in increasing the government's GST collection and other taxes by increasing the ability of companies to write more business," it said.

The increase in stake from 26 per cent to 49 per cent in 2015 led to an increase in total premium income of the Indian life insurance sector from around Rs 3 lakh crore in 2014 to around Rs 4.5 lakh crore in 2018.

The total premium income growth for the private sector during 2014-15 and 2015-16 was 14 per cent each, while in 2017 and 2018, it was 17 per cent and 19 per cent, respectively.

"A further increase in FDI to 100 per cent is likely to grow the Indian life insurance sector at much faster pace," the insurers said.

It also said the increase in FDI is likely to increase money supply to the capital market that will increase economic activities.

In the past, the increase in FDI to 49 per cent helped in increasing assets under management for the private life insurance players from Rs 1,07,225 crore in 2014 to Rs 2,54,461 crore in 2018.