Steps To Open Up Insurance Sector Expected
India is expected to announce new steps to open up its lucrative insurance sector to foreign investors when finance minister P Chidambaram presents his budget tomorrow. Spurred by growing international clamour and the need to speed free-market reforms launched in 1991, India has taken several steps to lure investment in insurance, but has stopped just short of actually letting foreigners in.
Following pressure from the US and the World Trade Organisation (WTO), India has established a regulatory mechanism to open up the industry, currently dominated by two state-run firms. Chidambaram is widely expected to seek parliamentary approval to formally set up the insurance watchdog when he presents his budget for fiscal 1997-98.
Foreign investors 22 firms from Germany, Switzerland, Japan, the US and Britain have already queued up will get a chance to get their feet wet. Marine insurance is among the areas analysts expect Chidambaram to throw open.
The finance minister has assured (us) that he will make a statement along with his budget about the sequencing of the events he wants in the industry, N I Rangachary, the chairman of the Insurance Regulatory Authority (IRA), said recently. The finance ministry estimates the insurance sector is growing at the rate of about 11 per cent annually.
The Life Insurance Corp of India and its younger sibling, the General Insurance Corp , have ruled the sector since it was nationalised in 1956. By 1996, LIC officials say, new business had grown to Rs 52,000 crore a year, compared with Rs 328 crore in 1957.
Critics say LIC has become increasingly insensitive to its customers while enjoying this stupendous growth. Many consumer activists say LIC, which provides coverage for about 110 million of Indias 930 million population, is wedded to inefficient ways.
In case of a dispute, it takes a minimum of six years and a maximum of 18 years before that weeping widow, aged parent, or minor child who in the process becomes a major gets the claim, said Manubhai Shah, of the Consumer Education and Research Centre.
In the pre-reform era, the government made use of the vast funds at the LICs command to intervene in the stockmarkets or direct the countrys economy in other ways, Shah said.
It looked upon LIC as a milch cow, controlling its funds for the mobilisation of financial resources to be invested in national economic or industrial development programmes, regardless of the needs of the insuring public, he added. As a result, Shah said, Indian insurance products are skewed towards encouraging long-term savings, as opposed to term insurance, which pays off only in the case of death.
The LIC has registered a growth of 19 percent over the gross premium income for 1994-95 which aggregates Rs 13,149 crore, said F K Daruwalla of the Mumbai-based MF Reinsurance, in an analysis of the industrys performance in 1995-96.
As a percentage of GDP, this represents just one per cent, Daruwalla said. Thus the potential for developing the market is immense in both the life and non-life sectors.
Analysts say that unless LIC and GIC restructure and revitalise to fight off the challenge from newcomers, aggressive new entrants will lock them out of the potential growth ahead.
LIC officials agree with some of the criticisms leveled against the firm but stress that they are continually launching new products to help mop up funds.
Generally the perception has been that LIC has not been able to cater to the different needs of customers in terms of its products, said managing director G Krishnamurthy.