New Delhi:
Despite being opposed by the domestic insurance brokers, Finance minister Nirmala Sitharaman, in her maiden Budget on Friday, has announced raising the limit of foreign direct investment (FDI) from 49 per cent to 100 per cent in the Indian insurance broking industry as a part of the move to allow 100 per cent in insurance intermediaries.
The segments in the insurance industry that will benefit rom the new move are- Insurance Surveyors and Loss Assessors,Third Party Administrators(TPA), Web Aggregators,Corporate Agents.
“The FDI limit from 49 per cent to 100 per cent has been done to encourage higher overseas investment into the country,’’ said Sitharaman, while presenting Budget 2019-20 in the Lok Sabha adding that the government is in the process of reviewing existing FDI norms in insurance,aviation and media.
Currently,the Indian insurance broking industry deals with over Rs 30,000 crore of premiums primarily from the India non-life industry which generated over Rs 1,70,000 lakh crore of premiums in 2018-19. An insurance broker receive between 15 per cent to 20 percent of commission in placing different categories general insurance business.
However, in the domestic insurance industry, the current 49 per cent FDI cap has been maintained at the same level..
Supriya Rathi, promoter director, Anand Rathi Insurance Brokers said 100 per cent FDI in insurance intermediaries is not going to increase the insurance penetration in India as they will not be focusing on micro insurance or broking into smaller cities\towns but focus more on servicing large insured on their large policies or focus on reinsurance.Proposing 100 per cent FDI in insurance intermediaries with a view to open up investment across sectors will not likely have much impact on the FDI inflows.
Previously when the FDI was increased from 26 per cent to 49 per cent, only two foreign players increased their stakes in their insurance broking entities, said Rathi.
This move will likely benefit just the top 2/3 global insurance brokers already present in the country and will increase foreign dominance in the insurance intermediary space. Moreover it may increase outflows from the country as foreign players tend to repatriate their profits, cautioned Rathi .
Gayathri Parthasarathy, Partner and Head, Financial Services, KPMG in India, commented that 100 percent FDI in insurance intermediaries will help in building distribution scale and penetration of insurance products.
Govinder Kapoor, Chairman, Proclaim Insurance Surveyors and Loss Assessors,“We are confident that an increase in FDI limits to 100% would stimulate further investment in the insurance intermediary sector by foreign insurance surveyors and loss assessors, along with other intermediaries. This will also lead to enhancement of service standards in alignment with global trends which would benefit the ultimate policyholders interest.
Needless to mention, it would give an opportunity for the profession to develop greater intellect to service products that were previously unavailable in the Indian market, thus enhancing the products and services currently available and allowing each domestic firm to leverage international best practices and use them with their local knowledge and expertise, he explained.
Vikram Chhatwal, Whole-Time Director, Medi Assist Insurance TPA, “The change in FDI will attract significant investment in the sector and enable adoption of global best practices and lead to significant job creation both directly and indirectly. This policy will support the vision of 'Ayushman Bharat' and healthcare for all.”
The 100% FDI allowance in insurance intermediaries will benefit the insurance companies (both life and general), by widening the channels of distribution. ICRA expects higher foreign participation in insurance brokers, and insurance aggregator channels, Karthik Srinivasan,SR. VP and Group Head – Financial Sector Ratings,ICRA Ltd
Currently, there are half a dozen of foreign insurance brokers operating in the Indian market through joint ventures(JVs) formed with Indian partners.
Prominent among them are- Marsh, the largest insurance broker in the world, Willis Towers Watson , the third largest insurance brokers, Howden, UIB, Arthur J. Gallagher & Co and Toyota Tsusho Insurance Broker
The domestic insurance broking players,numbering over 400 consisting of direct brokers, reinsurance brokers and composite brokers, had opposed the 100 per cent FDI in the insurnace broking industry as the segment doesn't need much capital and wouldn't ensure large inflows of overseas investment into the country.
In FY 2018-19, new regulations by the IRDAI had specified Rs 75 lakh(earlier Rs 50lakh), Rs 4 crore(Rs 2 cr) and Rs 5 crore(Rs2.5 cr) of capital for a direct broker, reinsurance broker and composite broker respectively.
“The industry may not get any larger benefits out the move to allow 100 per cent FDI in the insurance broking industry.On the contray, small and midium scale brokers will be wiped out from the system as the overseas brokers have more muscle powers,'' said sources in the industry.A few international broking houses had lobbied for the 100 per cent FDI in the Indian insurnace broking industry,'' said sources in the Indian insurance broking industry.
A panel formed by the IRDAI in 2014, under Suresh Mathur,had suggested then that 100 per cent FDI be allowed over three years.However, the suggestions of the panel were not implemented.
Representations have been made to the government time and again on the issue that insurance brokers should be treated at par with other financial services intermediaries, where 100 per cent FDI is permitted.
"Insurance broking is like any other financial or commodity broking services. The issue was recently discussed in a high level inter-ministerial meeting. The government is positively looking at the matter," government sources said.
Industry experts have stated that the insurance sector is being impacted due to weak distribution networks.There is a need to strengthen the distribution network to support the sector as a whole.Insurance penetration in the country was 3.4 per cent in 2015 against the world average of 6.2 per cent.
Marsh in its global operations had acquired JLT Group, another international insurance broker which is also having operations in the country. Though both have merged globally, the integration hasn't happened in the counttry. JLT has a presence in India, JLT Independent Insurance Brokers, through a joint venture with Sunidhi Group, a local Indian financial services group.
Another international joint venture, UIB India, is a JV between the UK based UIB, Indo Rama SPL Group and Lucas & Mayo is another accredited composite insurance brokers in the country.
Recently, Arthur J. Gallagher & Co. a US-based global insurance brokerage and risk management services firm, has formed joint venture with Edelweiss, to set up an insurance broking company in the country.Arthur J. Gallagher & Co is the fourth largest insurance broker in the world.
Aon, the second largest insurance broker, that had exited from a decaded old JV with Global Insurance Brokers,couple of years back, is currently making efforts to re- enter Indian market again.
US based insurance exchange Ebix has recently formed a JV with BSE Ltd and has currently sought approval from the IRDAI for rolling out an insurance broking company in the country.