FDI hike in insurance won't change industry much: CEO Survey

Last Updated: Wed, Dec 12, 2012 10:20 hrs

Chennai, Dec 12 (IANS) Contrary to the general perception that the private life insurers are in favour of 49 percent foreign direct investment (FDI) in the sector, a good number of head honchos are less enthusiastic about it, reveals an survey by US-based global actuarial firm Milliman.

The survey also finds that the top executives feel that the sectoral regulator is right in penalising insurers not playing by rules.

According to the survey, three out of 11 chief executive officers (CEO) are of the view that the FDI stake increase from the current 26 percent to 49 percent will not change the status of the industry. Not giving a direct answer, two CEOs said the FDI hike may have a positive impact.

As to the reasons why they do not see any positive impact if the FDI hike happens, CEOs cited the lack of difference in performance of companies with or without foreign promoter having operational/management control.

Given this, there is no evidence to suggest that FDI at 49 percent would help the industry get the much needed domain expertise, the CEOs believe, states the survey.

According to some CEOs, the hike in FDI limit might result in infighting between Indian and foreign promoters as there is not much of a difference between a 26 percent and 49 percent foreign ownership structure in terms of operational/management influence.

Further, the officials said the industry does not have the avenues to deploy the additional capital.

On the other hand, those in favour of FDI hike say that it would enable cash strapped promoters to raise funds and may bring in more foreign companies to India.

"But the moot point is whether the proposed enhancement from the present 26 percent to 49 percent - that is an increase of mere 23 percent - will have any meaningful impact in terms of inflows of capital. To fund increasing needs of capital for any growing insurance company, it may desirable to go the whole hog and increase the FDI limit to a significant 76 percent instead of a half hearted 49 percent. This may also help to bring in significant foreign exchange inflows," K.K.Srinivasan, former member of Insurance Regulatory and Development Authority (IRDA) told IANS.

According to him, there is a flip side to this move. Entry of too many players in insurance is often responsible for unhealthy competition and resultant de-growth and poor profitability.

On the issue of IRDA penalising insurers not playing by the rules, some CEOs felt India is not ready for a principles based systems of regulations and in a rules based regimes companies have to follow them.

According to the survey, one life insurance CEO was of the view that the regulator should have started penalising deviant companies much earlier.

Several CEOs expressed that IRDA should examine why all companies are being non-compliant in certain areas- for example, commission to distributors.

The felt IRDA should recognise the business realities and allow companies to offer flexibility in paying compensation to distributors.

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