Insurance Adviser Alert: Will India Finally Open for Insurance Business?
Published 10 July 2014
The success of the BJP in the recent Indian general elections has raised expectations of liberalisation of Indian economic policy and a relaxation of foreign investment caps in a number of sectors, including insurance.
The BJP government's first Union Budget will be presented by the Finance Minister on 10 July, and speculation is rife that an announcement will be made to proceed with the long awaited increase in the foreign ownership cap for insurance businesses from 26% to 49%.
This will be welcome news for those insurers with existing JV relationships in India (including Allianz, AIG, AXA and Ergo) who are expected to be able to increase their shareholding without significant restrictions.
It will also make India more attractive for those international carriers who have yet to enter the market and it is understood that some mechanism to enable greater access for Lloyd's is under discussion.
It is not expected that the liberalisation will be quite as straightforward for new entrants, but the government's intention will be to attract additional international insurance capital into India and there appears to be internal pressure to limit (or avoid altogether) the strings that will be attached to new licences. We understand that the restrictions being considered include:
- Phased increase in FDI cap over 3-4 years;
- Limitation on voting rights of foreign investors;
- Discretion for the IRDA to impose conditions on new licenses;
- Restrictions to prevent block shareholdings of 49% by single foreign investors.
New entrants will also need to identify a suitable JV Partner, agree the structure and terms for the JV and obtain regulatory approval.
Whatever announcement is made on 10 July will require an Insurance Bill to be passed by Parliament. Given BJP's large majority (the first for several years) this is expected to be less problematic than when the Bill has been tabled previously, but a space will need to be found in the parliamentary timetable and so the changes will take some time to come into effect.
With the latest figures from IRDA indicating that private sector insurers secured a further increase in market share to some 44% in 2013/14, these developments indicate increased opportunities for international insurers in India.
DAC Beachcroft and KSP have comprehensive expertise and experience in the Indian market and can advise and represent insurance sector clients on all aspects of their contractual, regulatory and product development needs.