The move to amalgamate HDFC Life with Max Life reflects the tough reality facing private life insurers in India, according to an expert.
It is a capital-intensive field. And, it is also proving to be a difficult terrain to penetrate. To find growth capital in such a situation is never going to be an easy task.
To compound their problems, the Indian insurance space appears to hold little interest for PE (private equity investors). “It offers no enticing opportunity for them (PE investors),’’ points out Aarthi Sivanandh, Partner, J. Sagar Associates (JSA).
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The reasons are not far to seek. They could be found in the diktats of IRDA (Insurance Regulatory and Development Authority). The regulator has made it clear that a life insurance company has to be Indian-owned and controlled. This definition can lend itself to wider interpretation. “PE players, by definition and action, however, require significant and/or selective control over their investees. In the case of insurance, however, this is tricky with the control regulations in place even though foreign direct investment is permitted up to 49 per cent,’’ she said.
Given the fact that the government-owned Life Insurance Corporation (LIC) is still comfortably dominating the scene, the option for organic growth is proving to be a long drawn-out and time-consuming one for many a private life insurers. That leaves M&A (mergers and acquisition) the best choice in the present circumstances.
The coming together of these two big private players makes enormous business sense. For one, it could improve the market share of the combined entity. For another, this will help them efficiently use the resources — both capital and policy-holder base.
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More than anything else, this would enhance their ability to offer sophisticated and innovative products for life insured. How they combine their skills could yet prove a key to solving many a rider these insurers face in the Indian operating environment.