The survey also calls for raising foreign equity share in the insurance sector from 26 per cent to 49 per cent.
The Economic Survey 2008-09 has suggested a way out “to dispel the fears over foreign equity” in insurance.
Apart from hiking the foreign direct investment (FDI) limit in the insurance sector from 26 per cent to 49 per cent, the survey said 100 per cent foreign equity should be allowed in a special category of insurance companies that provide all types of insurance such as health and weather to rural residents, and for all agriculture-related activities including agro-processing.
| WISH LIST |
| * Hike FDI in insurance to 40% |
| * Reduce the unit area of insurance to gram panchayats for major crops |
| * Improve the basis of calculation of the threshold yield, higher indemnity level |
Health insurance is one of the fastest growing sectors, as it grew by over 30 per cent in 2008-09. Also, with the penetration being as low as 2 per cent, the industry expects a lot of foreign participation in this segment.
Though the agriculture sector is hit by natural calamities like floods or droughts every year, the survey said that farmers, particularly the non-loanee ones, were not availing of agriculture insurance despite the high claims ratio (1:3.2) and low premium rates, especially for food and oilseeds crops.
The survey recommended reduction in the unit area of insurance to gram panchayat for major crops, improving the basis of calculation of threshold yield, higher indemnity level, coverage of pre-sowing or planting risks and post-harvest losses and a personal accident insurance cover.
Although the survey said that the insurance cover in both life and non-life segments had improved after the entry of private players, private participation in non-life segments remained lower compared to other emerging economies in Asia.
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The life insurance penetration in India has increased from 1.77 per cent in 2000 to 4.1 per cent in 2006 and declined to 4 per cent in 2007. Similarly, the general insurance penetration has increased from 0.55 per cent in 2000 to 0.6 per cent in 2006 and remained at the same level in 2007.
However, most insurance executives are not that optimistic about the survey’s wish list. They felt that the Insurance Bill would not be tabled in this session of Parliament and could see the light of the day only during the winter session.
The survey said that the insurance regulator had been entrusted with the responsibility of developing the industry through monitoring of consumer-related aspects like market conduct, consumer education and creating an integrated platform for redress of consumer grievances.
To ensure that appropriate governance practices are in place, the regulator came out with draft guidelines on corporate governance for maintaining solvency, sound long-term investment policy and prudent assumption of underwriting risks as the insurance companies are yet to be listed.