Insurance

Introduction:

The insurance sector in India used to be dominated by the state-owned Life Insurance Corporation and the General Insurance Corporation and its four subsidiaries. But in 1999, the Insurance Regulatory and Development Authority (IRDA) Bill opened it up to private and foreign players.

This was done in 2000. Since then there has been rapid growth and share of insurance in total financial savings of the economy has improved significantly. Competition in the industry is increasing with new players trying to establish a significant presence. Currently the total insurance market in India is about US$ 30 billion, in which the element of FDI is US$ 0.5 billion. This is 1.6% of total insurance business in India. currently, 49% of FDIs is permitted in insurance sector. it is expected that FDI's contribution to insurance business would touch nearly US$ 2 billion.

Insurance and FDI

Advantages of FDI in insurance Sector

Capital for expansion: FDI has the potential to meet India's long term capital requirements to fund the building of infrastructures which is critical for the development of the country. Infrastructure has been the major factor which has restricted the progress of the Indian economy. Insurance sector has the capability of raising long term capital from the masses as it is the only avenue where people put in money for as long as 30 years even more. An increase in FDI in insurance would indirectly be a boon for the Indian economy, the investments not withstanding but by making more people invest in long term funds to fuel the growth of the Indian economy.

Wider Scope for Growth: FDI in insurance would increase the penetration of insurance in India, where the penetration of insurance is abysmally low with insurance premium at about 3% of GDP against about 8% global average. This would be better through marketing effort by MNCs, better product innovation, consumer education etc.

Moving towards Global Practices: India's insurance market lags...