With the passing of the Indian Insurance laws (amendment) bill in March 2015, the government accented to raise the overseas investment limit in insurance to about 49% and subsequently provided a much needed lifeline for the $60 billion insurance business that has been starved of capital. An injection of an estimated US $12 billion in capital is required in the Indian insurance sector for it to be adequately funded. However there is more to this challenge than just capital injection. Below are 3 critical challenges to reviving the insurance business in India
Regulatory Framework Review
Many companies do not meet the condition of embedded value that has to be double the paid-up equity capital rendering them ineligible for IPO. Further an approval from not just the insurance regulator but also the market regulator SEBI is required prior to approval to float and IPO.
Product Diversification and Approval
Tough competition coupled by little product differentiation resulted to companies making lower margins. India's new business margin for insurers’ stands at about 10-15 percent compared to 20-25 percent in China and over 30 percent in Hong Kong. A revival of the industry will hang on regulatory changes that would allow banks to sell products of more than one insurer and faster approval process for new products.
About 50 percent of insurers in the non-life segment reported losses in the year 2011. This resulted to the closing down of branches, shedding of staff to manage recurrent cost and a systemic collapse of joint ventures e.g. ING’s venture with the car battery maker Exide and France’s Axa with Bharti Enterprises severely rocking investors’ optimism
These challenges are surmountable through proactive approaches by the government and the industry players. Investor’s optimism in the industry is still on a high and the review of the foreign investment law gives a shot in the arm to this optimism. The Industry is robust, registering growth in nearly all parameters. Demographic factors such as a young insurable population and a growing middle class will provide the foundation to support the growth of Indian life insurance.