Insurance FDI hike on FM agenda

KOLKATA: Now that the UPA government has survived the trust vote, the finance minister’s promise of financial reforms seems to point towards some major action in the insurance space.

“A number of bills are pending in Parliament. Our intention is take reforms forward by clearing these bills, which are from different ministries like finance and labour,” Chidambaram told reports in Jaipur on Wednesday.

“With the support of other parties we are confident of clearing these bills,” he added.
Sources told DNA Money the  issue of allowing foreign direct  investment in insurance firms  till 49% from 26%, along with amending the provisions of  various insurance laws, is likely  to be considered in the winter session of Parliament.

Increasing their stake — which could happen either by buying out the Indian promoter stake or inducing fresh capital — is expected to cost foreign companies up to to Rs 4,000 crore. It the sector is opened up further, about $3-4 billion is expected to flow in within 3-4 years.

However, the absence of a standardised format for the basis of valuation of these companies could throw up some headaches, and valuation of strategic stakes could become an especially contentious issue.

The issue of hiking the FDI cap in insurance has been a long standing demand of the industry, but the Union Cabinet was unable to take a decision last year due to strong opposition from the Left parties.

It did, however, forward the Comprehensive Insurance Bill to group of ministers for consideration. The bill will make amendments to the Insurance Act of 1938, LIC Act, 1956 and Irda Act, 1999.

Chidambaram admitted the Insurance Bill had been pending because of the Left’s objection to raising FDI to 49%. But “We will reach out to parties in Parliament and try to clear this bill. I am confident we will be able to do it,” he said.

At present there are almost  40 companies in the insurance space, either operating or ready to start operations.

An official at one leading insurer told DNA Money, “Keeping artificial caps in the insurance sector is not conducive, as this restricts the long-term domain capital as against short term FII ownerships. A larger capital means more capital and hence the capacity to generate more premiums.”

Most first generation insurers in India are approaching their 10th year of operation, after which they could go in for initial public offers. (With NW18)

g_nandini@dnaindia.net