Need to look into finer details, say companies about Insurance Bill

Insurers welcome bill, but seek clarity on FDI route and Indian management control

The finer details of the Insurance Laws (Amendment) Bill, 2008, will be studied closely before the companies take a decision on increasing stake of foreign partners or infusion of fresh capital.

Clarity will be sought on what route the foreign investment would come through, apart from the exact meaning of Indian management control, which has not been explicitly defined.

Sanjay Tripathy, senior executive vice-president, marketing, product, digital and e-commerce, HDFC Life, said insurers would wait for the finer details of the Bill before taking any decision. He added that smaller insurance players could see further investment from foreign partners, since they are in need of capital.

The issue of Indian ownership and control as recommended by the Rajya Sabha Select Committee on the Bill has been defined in the Bill with “control”, including the “right to appoint the majority of directors or to control the management or policy decisions, including by virtue of their shareholding or management rights or shareholder agreements or voting agreements”.

However, it is not clear whether voting rights of the foreign partner would be restricted or not and if foreigners can be appointed in the top management in insurance companies. This would include positions like chief executive, managing director and chief financial officer, apart from the appointed actuary.

Deepak Mittal, managing director and chief executive officer, Edelweiss Tokio Life Insurance Company, said there is a strong interest from large players in the industry to increase stake to 49 per cent, though he added that IPO activity would begin only after players decide upon whether they require foreign direct investment, foreign institutional investors, or both.

If fresh capital is brought in, insurers can get additional funds from their foreign joint venture partners as well as newer entities. Estimates said that the sector would gain an additional ~7500-8000 crore if FDI is raised.

Fresh equity would mean immediate capital to expand the insurance business by offering additional products and services, along with branch expansion. Some areas of business, especially health and motor insurance are considered to be money guzzlers since a significant portion of revenues go in paying claims. Hence, fresh equity would help those companies who have not been very active in these spaces to increase investment in these fields.

While the insurance regulator had earlier envisaged that large insurers would list on the stock market, industry players are of the view that they would not do so immediately. “Some large players are interested in an IPO. However, several factors like FIPB approval or automatic approval, apart from clarity in Indian management control would be sought before taking a decision,” said a senior insurance executive.

Many players have already agreed that FDI hike would lead to  a hike in foreign partner’s stake. Anoop Pabby, Managing Director and CEO, DHFL Pramerica Life Insurance said partnership agreement between DHFL and Prudential stipulates explicitly the situation where the FDI cap is lifted. “Prudential has a long-standing desire to bring up its share to the percentage allowed under the regulation and the agreement provides for this. We will follow our agreement between partners, subject to regulatory changes,” he said.

He added that the approval on the much awaited insurance Bill which increases the cap on foreign investors from 26 per cent to 49 per cent is likely to bring another wave of growth in the insurance industry.

“With the companies focusing on growth and expansion, the penetration of insurance will increase and the security of insurance could be availed by many more in India. It will also give the industry the much needed stability and the ability to focus on investing more on technology to revamp the back-end operations for smoother and better customer service,” he said.