The Industrial Credit & Investment Corporation of India Ltd. (ICICI) has signed a memorandum of understanding with the UK-based Prudential Corporation to enter the life insurance business when it is opened up in India. The two institutions will also explore the markets in healthcare, pension, asset management and mutual funds. The decision by ICICI to enter the insurance sector is part of its plan to become a universal bank.
While the life insurance segment has not been opened up, the two institutions are gearing themselves for this scenario by developing a common business framework. Describing the Indian market as an attractive opportunity, Mark Tucker, managing director, Prudential Corporation (Asia), said that they are committed to providing a wide range of financial and investment products which will provide the Indian consumer with greater choice. He added that the aim was to offer relevant, value-for-money products, professional advice and exceptional levels of customer service.
He expects the market to grow at 30 to 50 per cent per annum. While pointing out that the insurance business involved long gestation periods, Tucker said that it will take six to eight years before returns start flowing in.
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According to K V Kamath, chief executive officer, ICICI, Prudential will share its technological expertise with his company.
He added that the way insurance business is conducted in India is radically different from the rest of the world. There is tremendous scope for improvement in technology, he added.
It is possible that when the life segment is opened up eventually, ICICI, on the strength of its reputation, will be one of the first to be given approval.
The actual capital structure of the new company will be determined by the regulations prescribed by the Insurance Regulatory Authority (IRA).
The Malhotra Committee had recommended that the minimum paid up capital for life insurance firms be fixed at Rs 100 crore. The committee had also recommended that the foreign entity be permitted to hold up to 40 per cent in the joint venture.
Tucker pointed out that Prudential is not averse to the idea of being the minority partner.
For instance, in Malaysia, where Prudential has operations, the domestic partners are the majority stake holders, he said.
Prudential, which was operating in India between 1923 and 1956, has a good brand recall in the country, says Kamath.
Prudential, founded in 1848, is the largest life insurance company in the UK. The company, which has been operating in Asia for over 70 years, recently launched the $ 1 billion Prudential Invest Direct Asia fund targeted at making direct investments in the emerging markets of Asia particularly India, China and Vietnam.