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Project Report on

FDI in Insurance Sector

Submitted in partial fulfillment of degree of


B.Com (Hons.) At
University of Delhi

Submitted by:

Under the guidance of


-----------------------Department of Commerce
-------------------------UNIVERSITY OF DELHI
SESSION :- 2014-15

DECLARATION

This is to declare that the work entitled FDI in


Insurance sector is based on my original work.
Wherever
assistance
has
been
clearly
acknowledged.

(Mentor)
(Mentee)Content

1.
2.
3.
4.

Introduction
Report Aim & Objectives
Study Methodology
Overview
a. History of Insurance
b. Registration of insurance companies
c. Manner of calculation of twenty six percent equity capital
held by a foreign company
d. Fdi in insurance: how much to cap a critical appraisal

5.
6.
7.
8.

e. Present Condition
Arguments for and against FDI in Insurance Sector
Interpretation of data
Conclusion
Bibliography

INTRODUCTION
The history of Indias political economy is replete with missed opportunities. The approach to growth and
investment has been often stranded in the many romantic notions of self-reliance and what constitutes
national interest. In every decade since Independence, the approach to foreign direct investment has been
influenced by a mistrust triggered by a colonial hangover. Every time India has opened its doors or
windows if you please to foreign investment, it has been characterized by gradualism in the wake of
much opposition. The debates around opening or expanding FDI are similar as it was when telecom or
banking opened up for foreign investment. What is important to recognize is that every such initiative has
been beneficial, delivering greater common good.
India maintained a favourable policy towards FDI during the early plans, mare specifically till around the
year 1967. FDI was regarded as indispensable for development and was thus welcome. But some
preconditions were laid down to protect national interests. However from 1968 onwards, tight regulations
were imposed on FDI and this phase continued till about 1980. Restrictions began to be relaxed on
gradual liberalization introduced in the FDI sector between 1980 and 1990. And then with economic
reforms initiated in July 1991, liberalization became the keyword. Ceiling on FDI in many sectors was
raised, automatic approval was given for FDI inflow, and foreign technology agreements were liberalized.
Foreign Investment Promotion Board was set-up. Many new sectors have been opened up for foreign
direct investment.
Higher economic growth is driven by competition and consumer choice. Competition drives efficiency
and efficiency drives growth. This is true of every country that has done well economically. It is also true
of India since 1991, in segments where competition has been introduced. Any attempt to artificially
introduce protection always has costs. Inefficient producers are protected, but at the expense of
consumers. Consumers suffer from higher prices, bad service and limited choice. This is straightforward
under-graduate economic theory. The gains to inefficient producers are more than neutralized by losses to
consumers, leading to an overall deadweight welfare loss to the country. In this argument, the colour of
the competition, whether it is domestic or foreign, does not matter. In addition, there is the
macroeconomic argument about a current account deficit having to be met through capital account
inflows and non-debt-creating FDI inflows are preferable to debt-creating capital inflows. While these
broad arguments about competition and FDI are accepted, the question to ask is, why should the insurance
sector not be subject to these compelling arguments? Is there anything special about insurance that
rational arguments should not be applied to this sector? In every sector where India has opened up to FDI,
be it manufacturing or be it services, two propositions are empirically evident. First, liberalization helps
consumers. Second, fears about inefficient producers being eliminated are also vastly exaggerated.
Instead, producers of goods and services adapt and survive, based on access to capital, technology,
knowhow, improved management practices and customer orientation. Therefore, protection not only

harms the cause of consumers, it also harms the cause of producers. There is no reason why insurance
should be treated differently. And economic logic and rationale should not be conditional on whether one
is within the government or is in opposition.
Generally speaking FDI refers to capital inflows from abroad that invest in the production capacity of the
economy and are usually preferred over other forms of external finance because they are non-debt
creating, non-volatile and their returns depend on the performance of the projects financed by the
investors. FDI also facilitates international trade and transfer of knowledge, skills and technology.
India's foreign investment policy is fairly liberal, allowing up to 100% foreign investment in most sectors.
However, some sectors have caps on FDI. The government also imposes caps on portfolio investments,
within the FDI caps or separately, to cap total foreign equity in certain sectors. These caps apply mainly in
areas considered strategic or sensitive, as well as to any investments considered to have national-security
implications. In most sectors, investment up to the caps is permitted on the "automatic route", meaning
that companies need only file papers with the central bank after investing. In areas that the government
wants to monitor more closely, prior approval is necessary from the Foreign Investment Promotion Board.
Foreign Direct Investment in India is allowed through four basic routes namely, financial collaborations,
technical collaborations and joint ventures, capital markets via Euro issues, and private placements or
preferential allotments. FDI inflow helps the developing countries to develop a transparent, broad, and
effective policy environment for investment issues as well as, builds human and institutional capacities to
execute the same.
The insurance sector is of considerable importance to every developing economy; it inculcates the savings
habit, which in turn generates long-term investible funds for infrastructure building. The nature of
insurance business ensures constant inflow of funds - the payout is staggered and contingency related thereby making it readily available for investment on infrastructure building. Its contribution to GDP is
quite significant.
The Union government had opened up the insurance sector for private participation in 1999, also allowing
the private companies to have foreign equity up to 26 percent. Following the opening up of the insurance
sector, many private sector companies have entered the insurance business.
The insurance sector has been a fast developing sector with substantial revenue growth in the non-life
insurance market, but in spite of its huge population, India only accounts for 3.4% of the Asia-Pacific
general insurance market's value. The cap on foreign companies equity stake in insurance joint venture is
26%, but is expected to rise to 49%.
The investment pattern with regard to foreign direct investment (FDI) and inflows from non-resident
Indians remains resilient and FDI inflows into the country grew by an impressive 145% between fiscal
2006 and 2007 and by a respectable 46.6% between fiscal 2007 and 2008. However, owing to the
economic downturn, the growth in FDI inflows in fiscal 2009 slowed to 18.6% from the previous fiscal.
Foreign investment, in addition to technological improvement and expertise, brings with it a plenty of
risks. An increase in the size of foreign holding in the insurance sector will certainly expose the country to
risks. At the same time, it is important to recognize that FDI in Insurance can address several issues

pertaining to the sector such as encouraging development of innovative financial products, improving the
efficiency of the Insurance Search sector.

REPORT AIMS &


OBJECTIVES
The aim of this report is to provide an analysis
the arguments for and against FDI in India's
insurance sector.
The report's objectives are to investigate the
Indian insurance sector and review current
policy and regulations with regards to foreign
investors so as to gain an understanding of the
current position on FDI, as well as an
overview of the Indian system. This will be
followed by an examination of the arguments
both for and against changing current policy
and improving the regulatory environment.
This will enable us to assess the key factors to
considered in making policy changes in the
future.

of

be

The next objective will then be to compare the thoughts and opinions of people working within or
alongside India's domestic insurance sector, via a survey, to interpret the domestic market sentiment
towards foreign investment, and to explore thoughts on the issues faced by the sector. It will then be
possible to consider what solutions could potentially resolve the issues.

STUDY METHODOLOGY
Study Approach
This particular study on FDI in India's
insurance sector will utilize an inductive
approach to the research, which should help
to achieve the aim and objectives. The
investigation will allow us to form a
reasoned opinion as to what government
policy changes are required to make the
opening up of FDI in insurance as successful
as possible for the India's economy.
This study will be based predominantly on
qualitative research techniques, using
primary methods as well as secondary
methods, in order to allow for an in-depth and insightful exploration of current issues surrounding FDI in
India's insurance sector, and to assist in gaining an understanding of the 'sentiment' in India towards
foreign investor and their potential impact on the insurance sector and wider economy. There will be a
certain amount of quantitative analysis undertaken with the data received from the proposed research
survey. The survey based on closed-ended-question only.
The report hopes to establish if there is a genuine argument for government policy to change in favor of
FDI in insurance sector, to assess and make recommendations of changes to current policy, and to
consider the risks to India's economy, and society, with a view to encouraging 'socially responsible
investment'.
To initiate this study, three questions were originally designed to help construct aims and objectives, and
to provide some initial focus. The three questions were:

Are you aware about FDI in Insurance Sector?

Are you aware of the current FDI in Insurance Sector Regulation policy?

Do you think that FDI is required in Insurance Sector?

Primary data
The primary data that I collected were the first hand information, which I received through personal
interviews with the agents and through questionnaires. This data gave the most vital information for
making my analysis of the prevailing FDI in India's insurance sector behavior of the agents.

Secondary data

a) Internet:- Searching the internet extensively the starting point of this research and provided
some valuable secondary data. Website such as the Government of India's Ministry of Finance
www.finmin.nic.in which provides information on current FDI policy through the Foreign
Investment Promotion Board (FIPB), and also provides press releases and data and statistics have
been useful. The report also references some small domestic industry group's website useful, and
other trade lobby sites. One particular notable internet resource was the Center for Policy
Alternatives (www.cpasind.com) which have provided particularly informative reports on some
of the key issues with FDI in Indian insurance sector
b) Academic textbooks:- There is a vast amount of literature on FDI in general; however there is
less on FDI in India, and limited amounts that are specifically focused on the insurance sector.
The available texts on general FDI were useful background research though.

OVERVIEW
History of insurance
A contract of insurance may be defined as a contract whereby, one person, called the insurer,
undertakes, in return for the agreed consideration, called the premium to pay to another person, called
assured, a sum of money or its equivalent on the happening of a specified event.
The aim of all insurance is to make provisions against dangers which beset human life and dealings.
Those who seek it endeavor to avert disasters from themselves by shifting possible losses on the
shoulders of others who are willing for pecuniary consideration, to take risk thereof, and in the case of life
assurance, they endeavor to assure to those dependant on them a certain provision in case of their death,
or to provide a fund out of which their creditors can be satisfied.

A.Ancient India
In India, insurance has a deep-rooted history. It finds mention in the writings of Manu (Manusmrithi ),
Yagnavalkya ( Dharmasastra ) and Kautilya ( Arthasastra ). The writings talk in terms of pooling of
resources that could be re-distributed in times of calamities such as fire, floods, epidemics and famine.
This was probably a pre-cursor to modern day insurance. Ancient Indian history has preserved the earliest
traces of insurance in the form of marine trade loans and carriers contracts. Insurance in India has
evolved over time heavily drawing from other countries, England in particular.

B. The British Period


1818 saw the advent of life insurance business in India with the establishment of the Oriental Life
Insurance Company in Calcutta. This Company however failed in 1834. 1870 saw the enactment of the

British Insurance Act. This era, however, was dominated by foreign insurance offices which did good
business in India. The Indian Life Assurance Companies Act, 1912 was the first statutory measure to
regulate life business. In 1928, the Indian Insurance Companies Act was enacted to enable the
Government to collect statistical information about both life and non-life business transacted in India by
Indian and foreign insurers including provident insurance societies. In 1938, with a view to protecting the
interest of the Insurance public, the earlier legislation was consolidated and amended by the Insurance
Act, 1938 with comprehensive provisions for effective control over the activities of insurers.

C. The Nationalized Era


The Insurance Amendment Act of 1950 abolished Principal Agencies. However, there were a large
number of insurance companies and the level of competition was high. There were also allegations of
unfair trade practices. The Government of India, therefore, decided to nationalize insurance business.
An Ordinance was issued on 19 th January, 1956 nationalizing the Life Insurance sector and Life Insurance
Corporation came into existence in the same year. The LIC absorbed 154 Indian, 16 non-Indian insurers
as also 75 provident societies245 Indian and foreign insurers in all. The LIC had monopoly till the late
90s when the Insurance sector was reopened to the private sector.

D. The Liberalized Era


This millennium has seen insurance come a full circle in a journey extending to nearly 200 years. The
process of re-opening of the sector had begun in the early 1990s and the last decade and more has seen it
been opened up substantially. In 1993, the Government set up a committee under the chairmanship of RN
Malhotra, former Governor of RBI, to propose recommendations for reforms in the insurance sector. The
committee submitted its report in 1994 wherein, among other things, it recommended that the private
sector be permitted to enter the insurance industry. They stated that foreign companies be allowed to enter
by floating Indian companies, preferably a joint venture with Indian partners.
Following the recommendations of the Malhotra Committee report, in 1999, the Insurance Regulatory and
Development Authority was constituted as an autonomous body to regulate and develop the insurance
industry. The IRDA opened up the market in August 2000 with the invitation for application for
registrations. Foreign companies were allowed ownership of up to 26%. In December, 2000, the
Subsidiaries of the General Insurance Corporation of India were restructured as independent companies
and at the same time GIC was converted into a national reinsurer. Parliament passed a bill de-linking the
four subsidiaries from GIC in July, 2002.

Today there are a number of private sector insurance companies. The table below shows the breakup of
insurance companies:-

No of Public Sector

No of Private Sector

Companies

Companies

Life Insurance

01

20

21

General Insurance

06

14

20

Re insurance

01

00

01

Total

08

34

42

Type of Business

Total Companies

REGISTRATION OF
INSURANCE COMPANIES
Section 14(2) of the Insurance Regulatory and Development Authority Act, 1999 states that the authority
shall have the power and function to issue to the applicant a certificate of registration, renew, modify,
withdraw, suspend or cancel such registration.

Procedure for registration


An insurance company must be first incorporated under the Companies act 1956 and must also be
registered with the Insurance Regulatory and Development Authority (IRDA) which is governed by both
the Companies Act 1956 and the Insurance Regulatory and Development Authority Act 1999.
Section 3 of the Insurance Act provides that every application for registration shall be made in such a
manner as may be determined by the irda and shall be accompanied by the documents mentioned therein.
Separate Regulations are passed by IRDA called the IRDA Registration of Indian Insurance Companies
Regulations 2000. As per that a new entrant Indian Insurance Company desiring to carry on insurance
business in India shall make an application for registration in form IRDA/R1.This form requires the
applicant to give his details prescribed therein with which the Insurance Regulatory and Development
Authority will screen his status and if it is satisfied that he can carry on all functions in respect of the
insurance business including management of investments with his own organization and is a bona fide
applicant, and that his previous application has not been rejected in the previous five financial years, and
his [previous certificate has not been withdrawn or cancelled and his name contains the words insurance

company or assurance company, the authority gives him an application for registration in form IRDA/R2;
otherwise it will reject his application after giving him a reasonable opportunity for hearing as to why his
application shall not be rejected. The order rejecting the application must be communicated to him by the
Authority within 30 days of such rejection.
The applicant on receipt of the rejection order may apply to the Authority within 30 days for
reconsideration of its decision. An applicant whose application has been finally rejected may make a fresh
application after a period of two years with a new set of promoters or for a new type of insurance
business.
If his application in form IRDA/R2 is accepted, the Authority will furnish him with an application in
Form IRDA/R2. On receipt of application in form IRDA/R2, the authority makes an inquiry as it deems
fit and if it is satisfied in that inquiry then may register the applicant as an insurer for the class of business
for which the applicant is found suitable and grants him a certificate in form IRDA/R3. The certificate
issued in the beginning will be valid for a year. Thereafter, there shall be an annual renewal.

Renewal of Registration
An insurer, who has been granted a certificate under section 3 of the Act, shall make an application in
form IRDA/R5 for the renewal of the certificate, to the authority before 31 December each year, and such
an application shall be accompanied by evidence of the payment of the fee which shall be the higher of:

Fifty thousand rupees for each class of insurance business, and

One-fifth of one per cent of total gross premium written direct by an insurer in India during the
financial year preceding the year in which the application for renewal of certificate is required to
be made, or Rs. 5 crores, whichever is less; and in the case of an insurer solely carrying on
reinsurance business, instead of the total gross premium written direct in India, the total premium
in respect of facultative reinsurance accepted by him in India shall be taken into account.

Cancellation or Suspension of Certificate

The registration of an Indian Insurance Company or insurer who:

Conducts its business in a manner prejudicial to the interests of the policy holders;

Fails to furnish any information as required by the authority relating to its insurance business;

Does not submit periodical returns as required under the Act or by the Authority.

Does not cooperate in any inquiry conducted by the Authority;

Indulges in manipulating the insurance business;

Indulges in unfair trade practices;

Fails to make investment in the infrastructure or social sector specified under sub-s1 (a) of s.
27(d) of the Insurance Act.

may be suspended for a class or classes of insurance business for such period as may be specified by the
Authority by an order.

MANNER OF
CALCULATION OF
TWENTY SIX PERCENT
EQUITY CAPITAL HELD BY
A FOREIGN COMPANY
Regulation 11 of Insurance Regulatory and Development Authority (Registration of Indian Insurance
Companies) Regulations, 2000 states that calculation of the holding of equity shares by a foreign
company either by itself or through its subsidiary companies or its nominees referred to as foreign
investor) in the applicant company, shall be made as under and shall be aggregate of:
The quantum of paid up equity share capital held by the foreign company either by itself or through its
subsidiary companies or nominees in the applicant company;
the quantum of paid up equity share capital held by other foreign investors, non-resident Indians, overseas
corporate bodies and multinational agencies in the applicant company; and
the quantum represented by that proportion of the paid up equity share capital to the total issued equity
capital of an Indian promoter company mentioned in sub-clause (i) of clause (g) of regulation 2 held or
controlled by the category of persons mentioned in the two clauses above.

For purposes of calculation referred to above, account need not be taken of the holdings of equity in an
Indian promoter company held by foreign institutional investors, other than the foreign promoters of the
applicant and their subsidiaries and nominees, and Indian mutual funds to the extent the investment of
foreign institutional investors and Indian mutual funds are within the approved limits laid down by the
Securities and Exchange Board of India under its rules, regulations or guidelines issued from time to time.

FDI IN INSURANCE: HOW


MUCH TO CAP A
CRITICAL APPRAISAL
In India, FDI in insurance sector is allowed up to 26 % at the present. But compared to other sectors like
call centers, BPOs, pharmaceuticals, power, hotel and tourism where FDI up to 100% is allowed, this is
much lower.

General Overview of the Problem


There are sub-plots within the main story, as the insurance industry considers whether or not the FDI cap
in the insurance sector will actually be raised. The common man's picture of the fight for FDI was seen
solely as a political one -- where the Left is acting spoilsport in raising the FDI cap from the current 26
percent to 49 per cent.
The reality, however, is that the industry is as divided as the political parties. Indian corporate chiefs like
Deepak Parekh and Rahul Bajaj are keen to dilute their holding in their respective insurance joint
ventures. At the same time, they want to maintain their majority stakes.

It is the smaller players who are eager for a hike in the FDI cap. The current FDI limit will restrict the
growth of private insurance players because a sizeable working capital is required, points out Philip G
Scott, group executive director, Aviva Plc. He admits that growth at Aviva could suffer. "We have
contingency plans in place but in a worst-case scenario, business will need to grow much more slowly if
FDI is not raised," he adds. Aviva is a 26:74 joint venture with the Dabur group.
Foreign partners are equally keen to increase their share in insurance joint ventures to make current
investments worthwhile. "Raising the FDI cap will give confidence to foreign investors to do business on
a scale that is not restrictive," says Sunil Mehta, country head, AIG. His view is shared by a number of
global chiefs who have of late visited India and met the regulator. There is some hesitancy among
international investors who have a limited appetite to invest in equity capital, bring in the necessary IT
and expertise, when they can have only 26 per cent stake. "There are many more choices for us globally
to deploy capital where we can best achieve the interest of shareholders," says Aviva's Scott.
Another development, which is adding to the discomfort to foreign players, is the acute shortage of
domestic partners which can invest 74% of the initial capital of $22.7 million. This shortage of domestic
players has increased the valuation of the stakes to be hold by domestic players. The overseas partners are
prepared to pay high premium from the day one to the domestic partner and if it is ready to pull out of the
existing partner the valuation stake is still higher.
This is also luring the domestic players to look for a new partner.

Problems of Raising the Capt to 49%.


At the moment, Indian promoters are apprehensive that should FDI be raised, foreign partners will have
an upper hand in the 10th year of operation. Their concern follows the Insurance Act dictating the dilution
of Indian promoters' stake in favor of the general public. This means that while Indian promoters would
end up holding 26 per cent according to the IRDA Act, their foreign counterpart could have a higher stake
of 49 per cent. Describing all the impacts of a potential lifting of the cap is rather tricky, as the main
problem with this policy decision is that it is difficult to separate the costs and benefits of FDI versus
those of increased FDI.
There is a "tipping-point" where the domestic industry loses economic control of the sector and that is
where the cap should be placed. The Indian government has estimated this point to be 51%, thus placing
the cap at 49%.C S Rao, chairman of Insurance Regulatory and Development Authority, says in response
to industry's apprehensions that the clause would necessarily be amended, "else both the shareholders will
need to bring down their respective holding to 26 per cent." The IRDA Act had not visualized foreign
holding rising from the current 26 per cent to 49 per cent.
At the same time, India Inc hopes to make a killing when it sells its stakes to foreign partners. "Dilution
of shareholding will be at a premium. I cannot see Indian promoters diluting at par after having put in the
majority of funds in the beginning when the venture was taking off," says Shikha Sharma, managing
director, ICICI Prudential Life Insurance Company. Foreign partners have already indicated their
keenness to raise their stakes, even if it is at a premium. Prudential Plc, the foreign joint venture partner
of ICICI, has beefed up plans to hike its stake in ICICI Prudential Life Insurance Company.

Issue of Penetration of Insurance Markets to All Regions


The insurers of India address issus of poor insurance penetration, low insurance density with hardly any
insurance protection against natural calamities like droughts, floods, hurricanes and earthquakes. The
insurance market is developing in the region only now and it has to be nurtured carefully. The
nationalized companies did contribute to the spread of insurance beyond the metropolitan areas and
succeeded in popularizing the concept in rural and semi-urban areas. There was, however, a huge gap
between the potential available and its exploitation. The public sector companies had numerous problems
such as over-staffing, inadequate infrastructure, and antiquated procedures. In the absence of competition
the consumer didnt benefit in terms of wider choice, lower price for insurance cover and adequate level
of service. With the adoption of the Insurance Regulatory and Development Authority (IRDA) Act in
April, 2000, the insurance market was opened up to the private sector with limited exposure to foreign
equity.
The insurance premium in India accounted for a mere 2 per cent of GDP as against the world average of
7.8% and G-7 average of 9.2% during 90s. The insurance premium as a percentage of savings in India is
5.95% as compared to 52.5% in UK. The nationalized insurance companies could barely unearth the vast
potential of the Indian population since the policies lacked flexibility and the Indian life insurance
products were not linked to the contemporary investment avenues.
In 2013, the Indian economy is expected to touch $ 2 trillion in GDP. Yet for the size of the economy and
its potential, India has an abysmal level of insurance penetration and density. Total penetration at 5.1
percent is less than world average of 6.9 per cent. Remember India is currently among the top ten
economies in nominal GDP and fourth largest in terms of purchasing power parity. But in terms of
penetration, it is ranked lower than South Africa and Taiwan. The World Economic Forum Financial
Development Report 2012 ranks India 17th of 62 nations surveyed in life insurance penetration, 52nd in
non-life insurance penetration and 50th in real growth of direct insurance premium well below its
potential and far below smaller economies. If one splits the penetration into segments of life and non-life
the performance of Life at 4.4 per cent looks good. But one must remember that this is an economy
with virtually no social security coverage and no pension benefits for those outside the organized sector. A
2008 survey by the National Council for Applied Economic Research with Max New York Life shows
that while 78 per cent of the people were aware of life insurance ownership of products was only 24 per
cent. To get a perspective of the scale of uncovered population, one must remember that less 11 per cent
of the total workforce is part of the organized sector. The Economic Survey puts the total workforce in the
organized sector at 28.7 million. The unorganized sector or the informal economy accounts for over 90
per cent of workforce and about 50 per cent of the national product.
I am of the firm belief that it is possible to sustain a high level of growth in the insurance market in view
of the large untapped potential. India is a nation of a billion people and is one of the fastest growing
economies. It has a large middle class with high household savings rates and disposable incomes. The size
of the family is shrinking and this section of the population is looking at opportunities for obtaining
appropriate risk cover coupled with maximization of returns on their investments. Indian economy,
predominantly an agrarian economy, offers enormous growth opportunities for the insurance sector. As

per experts, rural sector can become a prominent contributor in the overall growth of the insurance
industry in India, provided the needs & occupational structure of people living in villages is understood.

Problem of Investment of the Funds collected by the Insurance Companies


The insurance sector has been an important source of low cost funds of long-term maturities all over the
world. In the Indian context, however, the insurance companies, particularly in life insurance, apart from
covering risk are also committed to repayment of the principal with interest although with long maturities
and thereby tend to act as investment funds. One of the reasons that this has happened is that the average
premium charged by the insurance companies in India tends to be relatively high due to obsolete and rigid
actuarial practices and inefficient operations. There is pressing need to reorient the insurance sector in a
manner that it fulfills its principal mandate of providing risk cover. The opening up of the insurance sector
to private participation, including banks in August 2000 has been able to instill an element of competition
which in turn is promoting efficiency and professionalism and enhancing consumer choice through
product innovation.
In my opinion India is hungry for Long term capital needs to fund the building of infrastructures, which is
the need of the hour. Infrastructure or the lack of it has been the brake, which have hindered the leap of
the Indian Economy. Despite shortcomings, Indian Economy has come a long way, but every industry
leader would crib at the infrastructure bottlenecks that they have face everyday in their effort for growth.

Should the FDI Limit be Increased


The opening up of the cap on FDI investment in India from 26 to 49% has been discussed and rediscussed. The main concerns with this liberalization are political rather than purely economic in nature,
although there are distributional impacts to be considered.

In my opinion increasing the FDI limit would be an appropriate measure which would be in the interest of
the country. We already have a strong regulatory body and there are big Insurance companies already
knocking at our doors. Also, LIC is already big enough that it shouldn't be scared of competition. With the
kind of brand recognition, penetration and trust that LIC commands in India, it shouldn't really be a big
deal.
Growing steadily, the insurance sector in India is one of the most talked of sectors amongst the foreign
investors. Numerous opportunities are available in this sector for both domestic as well as international
players. Traversing a full circle, from a liberal competitive market to nationalization and then back to
liberalization, the insurance sector in India has shown rapid expansion over the past few years.
Increasing demand of consumer and industrial products and services plus elimination of a few of the trade
and investment barriers have been the main drivers behind the exponential growth of the insurance sector
in India.
By only Increasing the FDI in Insurance, we could even wait out a little longer on the FDI caps in other
sectors. By increasing the FDI in Insurance, that would take care of the year's FDI target of the country in
one go. But that is not the reason why I say that increasing the FDI in insurance only would affect a lot of
other Industries in a positive way, and that we could even do without the FDI in many other sectors for
some time, Real estate for one. 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 through better marketing effort by MNCs, better product
innovation, consumer education and so on.
By more investment in the investment sector, India would get adequate supply of long term capitals,
which India currently needs very badly. It is to be remembered that people generally invest for long term
in insurance policies, say for around 30 years. From the perspective of the domestic private players, FDI
is instrumental in filling the savings-investment gap in developing countries, and facilitates mobility
of long-term capital flows into the destination economy. Thus, a higher FDI cap would lower the entrylevel barriers to insurance as well as allow domestic players to recapitalize their firms. Also, private
sector players in the insurance markets are now beginning to look at savings-linked and pure risk policies
in order to diversify their markets. These are capital intensive ventures, and most firms are relying on FDI
to provide the required capital.
The impact on the LIC and GIC is again, very controversial. Since 1999, these two companies have seen a
turn-around in their levels of product diversification, service packages and customer service. They still
retain the largest market share in the sector, and many consumers view this turn-around as positive.
Product range and diversity has increased substantially since the opening up of the insurance sector. The
advent of competition has ensured that consumer needs are catered to, and now there are specific
packages that are tailored to targeted consumer groups. The hiking of the cap will introduce more players
into the market and this would increase consumer surplus significantly.
FDI has been seen to be beneficial to the recipient nation because of the positive technology spillovers
generated. This is particularly applicable in the Indian context as since the industry has been opened up,
the perception of insurance has changed from just a practice of "risk reduction" to a method of short term

profit-oriented investment. There are huge varieties of both life and non-life insurance policies and
packages, and measures like banc assurance, unit linked insurance, savings linked insurance and the like
are being introduced to great success. The entry of a large number of Indian and Foreign private
companies in life insurance business has to lead greater choice in terms of products and services. In the
years since the IRDA Act initiated market reforms, the insurance sector has experienced some remarkable
changes.
The premium underwritten in India and abroad by life insurers in 2006-07 has grown by 47.38 per cent as
against 27.78 per cent in 2005-06. First year premium including single premium accounted for 48.45 per
cent of the total life premium, whereas renewal premium accounted for the remaining. First year premium
including single premium recorded a growth of 94.96 per cent in 2006-07 compared to 47.94 per cent in
2005-06, driven by a significant jump in the unit-linked business. The private life insurers have increased
their market share from 14.25 percent in 2005-06 to 18.08 per cent in 2006-07. This has not affected the
growth of LIC, as the premium collected by LIC in 2006-07 has increased by 40.79 per cent over the
premium collected in 2005-06. In the case of general insurers the growth was 21.51 per cent as against
15.62 per cent in the previous year. In 2006-07, the four public sector general insurers had reported a
growth of 8.18 per cent (6.87 percent in the previous year) in underwriting of premium within and outside
India whereas eight private sector insurers reported a growth of 61.24 per cent. The market share of
private insurers had increased to 34.72 per cent compared to 26.34percent in 2005-06 implying a decline
in the market share of the public sector insurers. The number of policies underwritten by the private
insurers increased by 51.48 per cent whereas it declined by 2.25 per cent for public insurers. The position
has now gradually changed after the opening of the insurance sector markets, where in the first 2 years
most of the private companies suffered losses and had a very small share of the insurance market. Now
slowly the private companies by offering better products in a competitive environment have established
their market share and even though LIC still is the market leader, but its share is gradually decreasing and
private insurers are gaining the confidence of the consumers.
In the light of these facts, I feel that it is now high time that cap on FDI in the insurance sector should be
increased to 49%.

Effects of Opening of Insurance Sector to Foreign Investors


More job opportunities:

Inflow of foreign capital

Indigenous reinsurance

Facilitate technology transfer

Wide distribution channel

PRESENT CONDITION
Size of insurance sector in India
Currently, only 26% of FDIs is permitted in insurance sector. Insurance is a US$41-billion industry in
India, and Increased by 36% in 2006-07 over the previous year. Life Insurance-US$35 billion industry
with US$24 billion accounting for First Year Premium. Non-Life Insurance-US$5.6-billion industry. The
total insurance business would touch US$ 60 billion size. If insurance sector is opened up to an extent of
49% for FDIs, it is expected that FDIs contribution to insurance business would touch nearly US$ 2
billion. In this paper we will examine the advantages and disadvantages of FDI in the insurance sector.

Competition in Insurance Sector


Even after the liberalization of the insurance sector, the public sector insurance companies continue to
dominate the insurance market, enjoying over 90 per cent of the market share. In fact, the LIC, which is
the only public sector life insurer, enjoys over 98 per cent of the market share in Life insurance.
According to the Annual Report of the IRDA, 9 out of the 12 private companies in life insurance suffered
losses in 2002-03. The aggregate loss of the private life insurers amounted to Rs. 38633 lakhs in contrast
to the Rs.9620 crores profit earned by life India Corporation.
When we look at the profit ratios the public sector insurance companies have more profit and even in the
private players say for Reliance have more profit but have no foreign equity. If profit is considered as one
parameter to measure the performance then the cap on the FDI in insurance won't have any significant
change.

Insurance Sector in India poised for tremendous expansion:


IRDA has also notified Micro Insurance regulations facilitating insurers to tap the potential of rural
markets. It is evidenced that micro insurance would facilitate access of insurance to rural and remote
areas. Micro Insurance being an integral part of overall insurance system, attempts to offer the target
specific insurance products at a moderately lower cost, for a lower coverage of amount.
Foreign equity up to 26% is allowed in the insurance sector. The entry of foreign partners has resulted in
the sector attracting FDI of US 543 million as on 31st March, 2007. The private companies have formed a
niche for themselves. They have been able to increase their share in the insurance market in competition
with their counterparts in the public sector. As a part of the reform process, premium rates for non-life
insurance products have been de-tariffed w.e.f. 1.1.2007.Insurance sector though the growth in recent
years has been significant; India is far behind the world averages and ranks 78th in terms of insurance
density and 54th in terms of insurance penetration. The world averages are US $ 469.6 in terms of
insurance density and 8.06% in terms of insurance penetration. Against this, insurance density was US$
19.70 and insurance penetration was 3.17% in India for the year 2003.
Even after the liberalization of the insurance sector, the public sector insurance companies have continued
to dominate the insurance market, enjoying over 90 per cent of the market share. In fact, the LIC, which is
the only public sector life insurer, enjoys over 98 per cent of the market share in Life insurance.
Market Share of Life and non-Life Insurance Sectors
(as % of total premium underwritten by insurers)

Given the huge market share enjoyed by the public sector companies, the argument, which is often made
by advocates of greater liberalization, that the entry of private players would bring down the cost of
insurance due to enhanced competition, does not seem to be convincing. The price making capacity of the
market leaders in the public sector is likely to remain intact for the time being. The foreign insurance
companies do have the reputation of charging less premium compared to the risks involved and promising
abnormally high returns, in order to grab greater market share. Such competition, however, although

capable of bringing down the cost of insurance for a while, has often led to gigantic frauds and
bankruptcies.
Moreover, as is the case in other markets, the initial flurry of entries into the Indian insurance market
would invariably be followed by a phase of mergers and acquisitions that would lead to cartelisation,
precluding the possibility of competition driving down the costs in the medium run. In the long run, other
forms of non-price competition like aggressive advertisement wars, are likely to lead to increasing costs,
eventually harming the interests of the consumers. These phenomena in the insurance market have been
observed in several advanced countries. If the public sector companies start imitating the strategies of the
foreign insurance companies in order to defend their market shares, it would be at the cost of undermining
their important social objectives, which they have been fulfilling so impeccably till date.

Freedom for profit on sale of investments:


To support general insurance players to be vibrant participants in capital markets, there is a requirement
for specific release from income-tax on profit on sale of investments. The issue of acceptability of UPR
(unexpired premium reserves) as per IRDA regulations rather than as per Insurance Act only, for IT
deductions. The UPR is at present restricted to the extent of limits specified in rule 6E of the Income Tax
rules due to which insurance companies need to pay tax beyond their profit disclosed in their audited
accounts.

Implications for Resource Mobilization


A major role played by the insurance sector is to mobilize national savings and channelize them into
investments in different sectors of the economy. However, no significant change seems to have occurred
as far as mobilizing savings by the insurance sector is concerned, following the liberalization of the
insurance sector in 1999. Data from the RBI show that the trend of the savings in life insurance by the
households to GDP ratio, while showing a clear upward trend through the 1990s signifying increasing
business for the insurance sector, does not show any structural break after 1999 (see chart below). It can
be inferred therefore that the foreign capital which flowed in after the opening up of the insurance sector
has not been accompanied by any technological innovation in the insurance business, which would have
created greater dynamism in savings mobilization.

Far from expanding the market for the insurance sector, the business activities of the private companies
are limited in urban areas, where a fairly good market network of the public sector insurance companies
already exists. The glaring evidence for this is the composition of agents operating in the insurance sector.
According to the IRDA Annual Report the number of insurance agents in urban and rural India was in
100:76 ratio in the public sector companies, in 2001-02. For the private insurance companies this ratio
was 100:1.4. Due to their urban-biased operational activity, the private insurance companies can neither
increase the insurance base of the economy significantly, nor lead to substantial employment generation.
Given this scenario, further increase in foreign participation is only going to lead to intensified
competition for the urban insurance markets, rather than leading to a growth in overall savings.
While the proposals for hike in FDI were placed, the arguments advanced were that FDI will
continue to be encouraged and actively sought, particularly in areas of infrastructure, high

POLICY AND
REGULATORY ENVIRONMENT
technology and exports.

Alongside the Foreign Investment Promotion Board (FIPB) previously mentioned, there is also the
Investment Commission which was established in December 2004 as part of the Ministry of Finance so as
to facilitate and enhance investment in India. They make recommendations on policy and procedure to the
Government and recommend projects that should be fast tracked through the approval process. They also
assist in promoting India as an investment destination.

Diagram indicates the relationship among the elements influencing the formulation of foreign investment
policy as was explained before. A summary of the relationship among the elements of economic policy
and investment policy objectives, economic policy and investment policy means, investment environment
and investment policy means, and investment environment and investment policy objectives is as follows.

Concept of FDI policies

a. Economic policy and investment policy objectives: the main reason for the government
inducement of foreign investment is to achieve economic development by including it policies to
improve employment rates, stabilize interest rates and foreign exchange rates, improve balance of
payments, performing restructuring of industry and corporate. Accordingly, foreign investment
policy can be a sub policy of national economic policy and on the same line; the investment
policy objective can be one of the national economic objectives. Therefore, the investment policy
cannot be established separately from the economic policy and it is restricted by the national
economic policy.
b. Economic policy and investment policy means: Investment incentive systems, i.e., tax reduction
or exemption, government grants, and rental fee reduction or exemption for government property,
as means for attracting foreign investment, can be non-compatible with other economic policy
means which is designed to attain each economic objective. For example, granting tax reduction
or exemption to a foreign investor as support means for attracting investment can be noncompatible with other economic policies established to form a sound national finance system. The
investment incentive system, which supports green field investment, will not be helpful to an
economic policy in which corporate restructuring is pursued in the M&A type. The investment
policy means to attain investment policy objectives can be influenced by other national economic
policies.
c. Investment environment and investment policy means: Generally, degree of investment incentives
offered to foreign investors by the host government and the attractiveness of investment location
of the host country, which is in inverse proportion. If a country has a well developed consumer

market or the cost of production factor is low, attracting MNC is rather easy even without the
special investment incentives. On the contrary, if a nation has unfavorable market size and
production efficiency, it has to promote its location attractiveness through relatively enhanced
investment incentives. The investment incentive can be not only an investment policy means but
also an element composing the investment environment itself.
d. Investment environment and investment policy objectives: Among the economic policy
objectives, the investment environment influences investment policy objectives when the
investment policy objectives to induce and attain foreign investment are selected. As the
investment environment becomes more attractive, a few restrictions are only possible in selecting
investment policy objectives from among the economic objectives. While the possibility is low
for a country with a high level of technology to select high-tech and enhanced industrial structure
as its investment policy objectives, the possibility is high for a nation with insufficient technology
and industrial foundation to select hi-tech and enhanced industrial structure as its investment
policy objectives. A typical example is Malaysia, which selected advancing industrial structure as
its investment policy objectives to convert its labor-intensive industry structure to a capitalintensive industry structure.
The Investment Commission (2009) believes the Foreign Investment regime in India as one of the most
transparent and liberal among emerging and developing countries. Differential treatment is limited to a
few entry 29 rules, predominantly in some Services sectors.
Currently, an application must be made to either the FIPB or the Secretariat for Industrial Assistance
(SIA) depending on which Approval route is being used, providing the proposed details of investment, the
business plan, financial and foreign company information, etc. A declaration is also required to confirm
whether the applicant has previous collaborations or trade mark agreements in India in the same
sector/field to which the application relates 30 (KPMG 2008)
Foreign investment can be approved via one of two different routes:a) Automatic Approval route requires no prior approval, and filing of the investment details to the
Reserve Bank of India (RBI) post-facto is literally for data records only. The automatic route is
appropriate in any sector where there is no 'sector cap' i.e. sectors where 100% foreign ownership
is allowed and some other specified sectors for example <26% of an Insurance company.
b) FIPB Approval route is for proposals where the shareholding is intended to be above a prescribed
'sector cap', or where the activity is one where FDI is currently not allowed, or where it is
mandatory for the application to be approved by the FIPB (for example, sectors requiring an
industrial licence.)
In terms of the insurance sector, foreign investment is currently limited to 26%. Subject to these equity
conditions, a foreign investor can set up a registered company and operate under the same rules and
regulations as an Indian company. Foreign investments are freely repatriable, and are regulated under the
Foreign Exchange Management Act (1999) (FEMA), administered by the Reserve Bank of India's
Exchange Control Department.

As per the current (March 2006) FDI norms, foreign participation in an Indian insurance company is
restricted to 26.0% of its equity / ordinary share capital. The Insurance Regulator has stipulated that
foreign investment in Indian Insurance companies be limited to 26% of total equity issued (FDI limit)

with the balance being funded by Indian promoter entities. The limit to foreign investment includes both
direct and indirect investment and has been a cause of significant lobbying by foreign insurance
companies for a change in regulations to increase the FDI limit to 49% of equity issued.
The Indian government has supported an increase in the FDI limit, which requires a change in the
Insurance Act. The Union Budget for fiscal 2005 had recommended that the ceiling on foreign holding be
increased to 49.0%.
A change in the Insurance Act requires a passage of the bill in both houses of Parliament. The Indian
government has tabled the bill in the Upper House of Parliament in August 2010.

Initial Public Offer (IPO) rules for Indian Life Insurance Companies
A key piece of legislation impacting on the Life Insurance industries capital raising abilities is the lock-in
period of 10 years for investment to be limited to promoter group equity investments. Under the Insurance
Guidelines, Indian Life Insurance companies can opt for a public issue of equity through an Initial Public
Offer (IPO) after 10 years of operations.
In October 2010, the securities market regulator, Securities and Exchange Board of India (SEBI), issued
disclosure norms for Indian Life Insurance Companies seeking to make an initial public offer for sale of
equity shares to the public.

ARGUMENTS FOR AND


AGAINST FDI IN
INSURANCE SECTOR
Arguments for FDI in insurance sector
1. Capital for expansion: FDI has the potential to meet Indias 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.

2. 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.
3. Moving towards Global Practices: Indias insurance market lags behind other economies in the
baseline measure of insurance penetration. At only 3.1%, India is well behind the 12.5% for the
UK, 10.5% for Japan, 10.3% for Korea and 9.2% for the US. Currently, FDI represents only
Rs.827 core of the Rs.3179 crore capitalizations of private life insurance companies.
4. Provide customers with competitive products, more options and better service levels: Opening the
FDI in the insurance sector would be good for the consumers, in a lot of ways. Increasing FDI
limit would impact a lot of industries in a positive way and that we could even do without the FDI
in many other sectors for some for example in real estate.

Arguments against FDI in insurance sector


1. Efficiency of the companies with FDI: The opening up of this sector for private participation in
1999, allowed the private companies to have foreign equity up to 26 per cent. Following this up
12 private sector companies have entered the life insurance business. Apart from the HDFC,
which has foreign equity of 18.6%, all the other private companies have foreign equity of 26 per
cent. In general insurance 8 private companies have entered, 6 of which have foreign equity of 26
per cent. Among the private players in general insurance, Reliance and Cholamandalam does not
have any foreign equity. The aggregate loss of the private life insurers amounted to Rs. 38633
lakhs in contrast to the Rs.9620 crores surplus (after tax) earned by the LIC. In general insurance,
4 out of the 8 private insurers suffered losses in 2002-03, with the Reliance, a company with no
foreign equity, emerging as the most profitable player. In fact the 6 private players with foreign
equity made an aggregate loss of Rs. 294lakhs. on the other hand the public sector insurers in
general insurance made aggregate after tax profits of Rs. 62570 lakhs.
2. Credibility of foreign companies: The argument that foreign companies shall bring in more
expertise and professionalism into the existing system is debatable after the recent incidents of
the global financial crisis where firms like AIG, Lehman Brothers and Goldman Sachs collapsed.
Earlier too, The Prudential Financial Services (ICICIs partner in India) faced an enquiry by the
securities and insurance regulators in the U.S. based upon allegations of having falsified
documents and forged signatures and asking their clients to sign blank forms. This was after it
made a payment of $2.6 billion to settle a class-action lawsuit attacking wrong insurance sales
practices in 1997 and a $ 65 million dollar fine from state insurance regulators in 1996. AMP
closed its life operations for new business in June 2003. Royal Sun Alliance also shut down their
profitable businesses in 2002. A recent report by Mercer Oliver Wyman, a consultancy, found that
European life insurance companies are short of capital by a whopping 60 billion Euros.
According to the Mercer Oliver Wyman Report the German, Swiss, French and British insurers
suffer from severe capital inadequacy, which is a result of undertaking risky investments in equity
and debt instruments in the past. Hence FDI in Insurance in India would expose our financial
markets to the dubious and speculative activities of the foreign insurance companies at a time
when the virtues of regulating such activities are being discussed in the advanced countries.
3. Greater channelization of savings to insurance: One of the most important duties played by the
insurance sector is to mobilize national savings and channelize them into investments in different

sectors of the economy. However, no significant change seems to have occurred as far as
mobilizing savings by the insurance sector is concerned even after the liberalization of the
insurance sector in 1999. Therefore the private or foreign participation has not been able to
achieve the goal.
4. Flow of funds to infrastructure: The primary aim of life insurance is about mobilizing the savings
for the development of the economy in long term investment in social and infrastructure sectors.
The same vision was argued for the opening up of insurance market would enable huge flow of
funds into infrastructure. But more than fifty percent of the policies they sell are ULIPS where the
investments go into the equity markets. As per a report, 95% of policies sold by Birla Sun Life
and over 80 percent of policies sold by ICICI Prudential were unit-linked policies during 200304. Under these schemes, nearly 50 percent of the funds are invested in equities thus limiting the
fund availability for infrastructural investments. On the other hand, the LIC has invested
Rs.40,000 crore as at 31.3.2003 in power generation, road transport, water supply, housing and
other social sector activities. IRDA figures further imply that the share of the public sector life
and non-life insurance companies in investment in infrastructure is greater than their market
share. Despite the FDI cap being set at 26%, the investment from the insurance sector to the
infrastructure sector was predominantly from the public sector companies. Hence the point of
raising the FDI cap in the insurance sector for mobilizing resources does not hold good.

DATA INTERPRETATION
Data Analysis
Below is a summary of the data results from the survey following analysis. There were 24
respondents in total. The following analysis charts display the results visually.
There is a vast amount of literature on FDI in general; however there is less on FDI in India,
and limited amounts that are specifically focused on the insurance sector. The available text
on general FDI were useful background research though, and the more specific texts.

Question

Yes

No

1. Are you aware about FDI in Insurance Sector?

21

2. Are you aware of the current FDI in Insurance Sector Regulation


policy?

13

11

3. Do you think that FDI is required in Insurance Sector?

19

4. Is 26% FDI sufficient in Insurance Sector?

14

10

5. Is there a need to make life insurance compulsory for all?


6. Has entry of FDI in Insurance Sector helped in improving the
quality of service in insurance sector?
7. Are you happy with the current FDI in Insurance Sector as it is?
8. Do you agree that Government reforms be made to support
domestic insurance company So that they can face the
competition with foreign insurance company?

24

12

12

16

15

9. Do you believe that lifting restriction on FDI in Insurance sector


allow more investment technical skills and consumers choice?
10. Do you think that the Indian Government should open up FDI
restriction in insurance sector?
11. Is higher FDI limit in insurance a threat for public sector
insurers?
Percentage
Question
12. According to you, what should be the
percentage of FDI allowed in insurance
sector?
Yrs.
Question
13. How long, the FDI in Insurance Sector is
required?
Finding and Resulting
1

12

12

13

11

14

10

024%

25%49%

50%74%

75%99%

17

1-5

6-10

11-15

16-20

16

Are you aware about FDI in Insurance Sector?

The first question revealed that 87.50% of respondents were aware of current FDI in insurance sector,
with 12.50% not being aware. This data shows that asignificant amount of people within the domestic
market place are paying an interest in the FDI. The awareness was anticipated to be high, due to the
very fact that the topic has been discussed.

Are
you aware of the current FDI in Insurance Sector Regulation policy?
The first question revealed that 54.17% of respondents were aware of current FDI in insurance sector,
with 45.83% not being aware. This data shows that a significant amount of people within the
domestic market place are paying an interest in the FDI. The awareness was anticipated to be high,
due to the very fact that the topic has been discussed in the Indian media many a time over the last
decade.

1. Do you think that FDI is required in Insurance Sector?


19

20
18
16
14
12
No. of people

10
8
5

6
4
2
0

Yes

No

It was evident from the responses that a significant number of respondents would like to require of
FDI in the Insurance Sector. 20.83% of respondents said 'Yes', whilst only 79.17% said 'No'.
2. Is 26% FDI sufficient in Insurance Sector?

16
14

14

12
10

10
No. of people

8
6
4
2
0
Yes

No

It
was evident from the responses that a significant number of respondents say that 26% FDI sufficient
in Insurance Sector. 58.33% of respondents said 'Yes', whilst only 41.67% said 'No'.

3. Is there a need to make life insurance compulsory for all?


30
25

24

20

No. of people

15
10
5
0
Yes

0
No

It was evident from the responses that all respondents say that Yes.
4. Has entry of FDI in Insurance Sector helped in improving the quality of service in insurance sector?
14
12

12

12

Yes

No

10
8
No. of people

6
4
2
0

50% of respondents believed that entry FDI in the insurance sector helped in improving the quality of
service in insurance sector and the 50% of respondents believed that entry of FDI in Insurance Sector not
helped in improving the quality of service in insurance sector.

5. Are you happy with the current FDI in Insurance Sector as it is?

18
16

16

14
12
10
No. of people

8
6
4
2
0
Yes

No

66.6
7% majority of people were satisfied with the policies as they are, while a 33.33% were dissatisfied
with the policies as they stand today.
6. Do you agree that Government reforms be made to support domestic insurance company So that they
can face the competition with foreign insurance company?
16

15

14
12
10
No. of people

8
6
4
2
0
Yes

No

62.50% of respondents felt that reforms should be made by the government to ensure that the
domestic insurer is supported. The other 37.50% of respondents felt that no reforms would be
necessary to support the domestic insurer.

7. Do you believe that lifting restrictions on FDI in Insurance Sector allow more investment technical
skills and consumers choice?

14
12

12

12

Yes

No

10
8
No. of people

6
4
2
0

specifically asked whether people agreed Yes or No to that lifting restrictions on FDI would allow
more investment, technical skills and consumer choice in India. 50% of respondents answered 'Yes',
believing that lifting restrictions would bring more investment, technical skills and consumer choices.
50% answered 'No'
13.5
13

13

12.5
12
No. of people

11.5
11

11
10.5
10

8.

Yes

No

o you think that the Indian Government should open up FDI restrictions in insurance sector?
54.17% of respondents believed that opening up FDI in the insurance sector would allow for improved
skills, technology, innovation and best practices. 45.83% were against the idea of opening up FDI in the
insurance sector, because they felt that the domestic market was not developed enough yet.

9. Is higher FDI limit in insurance a threat for public sector insurers?

16
14

14

12
10

10
No. of people

8
6
4
2
0
Yes

No

58.33% of people were satisfied with the policies as they are, while a 41.67% were dissatisfied with
the policies as they stand today.

10. According to you, what should be the percentage of FDI allowed in insurance sector?

18

17

16
14
12
10
No. of people

6
4
2

0
0-24%

25%-49%

0
50%-74%

75%-99%

The majority of respondents,70.83% thought between 0-24% was adequate enough percentage to allow
for the successful adaptation of domestic. A further 25% thought between 25%-49% would be more
appropriate, No one believed 50%-74%, and at 4.16% thought that should be between 75%-99%.

11. How long, the FDI in Insurance Sector is required?

18
16

16

14
12
10
No. of people

8
6

6
4
2

11 to 15

16 to 20

0
1 to 5

6 to 10

How
long a period they thought FDI should be opened up to allow domestic insurer to adjust successfully. The
majority of respondents, 66.67, thought 1 to 5 years was adequate enough time to allow for the successful
adaptation of domestic. A further 25% thought 6-10 years would be more appropriate, 4.16% believed 1115 years, and a at 4.16% thought that the phasing should be over a period greater than 15 years.