The promise of insurance reform

With the Rajya Sabha passing the Insurance Laws (Amendment) Bill, the Narendra Modi-led BJP government must be feeling strengthened. The Bill crossed the final hurdle only because its principal bête noire , the Congress, allowed its passage. That it took over six years for Parliament to give its assent to such a widely-anticipated step on the insurance front illustrates the sharp divide — not necessarily ideological — between the two principal players in Indian politics. Convergence of views very often does not lead to a consensus — for obvious political reasons. Nonetheless, the shadow-boxing between these two major national parties has helped trigger a high-voltage debate on the need for reform in the insurance space. The stakes go beyond the political and business constituencies. Insurance reform is only one of the measures the Modi administration is banking on as part of its growth strategy. But the constant polarisation on political lines on key issues is slowing the traction on important fronts and causing uncertainty, that tells on the economy.

Now that the way is clear for 49 per cent foreign holding in an insurance company, will the country see a flood of foreign direct investment? At the moment, the field is laid a lot easier for players. The operating environment has been redesigned to facilitate foreign investors to engage in the long-haul game. Insurance penetration in India, life and non-life put together, was just about 3.9 per cent in 2013, up from 2.3 per cent in 2000, according to Economic Survey 2014-15. This reveals the extent of opportunities available. Interestingly, according to the Survey, private insurers saw a 1.4 per cent decline in their premium in 2013-14 even as the Life Insurance Corporation recorded 13.5 per cent growth. These numbers tell a tale of their own. For long, insurance has been viewed only as a tax-saving tool. The protection element still has not seeped into the mind of the common person. Changing the mindset and spreading the net will involve much time and enormous cost. Competition could invigorate the field by providing greater access and more products at fair prices. Given the dynamics of the Indian marketplace, foreign players could bring to the table new dimensions. The experience elsewhere — as in the automobile industry — suggests that competition makes the consumer demanding. Surely, the Indian insurance field requires a more aggressive customer. The passage of the Insurance Bill will indeed go a long way in reconfiguring India’s position in the global marketplace.

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