Their decision will be contingent on the regulations that will be announced by the Insurance Regulatory Authority (IRA). More importantly it will actually depend on two factors: the minimum capital requirement and the social obligations that these companies need to fulfil.
The Malhotra Committee has recommended that the paid up capital of the new entrants should be a minimum of Rs 100 crore. It is now being pointed out that the Rs 100 crore requirement for operating only in the health segment is too big an amount.
The size of the market is relatively small. In fact, premium accruing to GIC on account of health policies is slightly over Rs 100 crore.
If the Insurance Regulatory Authority sticks to the Rs 100 crore minimum capital requirement, then in the initial phase, the private insurers will have very high solvency margins.
This will call for higher rates of growth which is unlikely to materialise in the immediate future.
Hence what the foreign companies are asking is for scaling down this figure from Rs 100 crore to Rs 30 crore.
They argue that as their ventures develop and the business grows, the paid up capital could be stepped up proportionately.
To overcome the limited size of the market one suggestion is that the insurance companies should be allowed to offer dollar-denominated health policies.
Non-resident Indians can subscribe to these policies on behalf of their relatives in the country.
However, it is difficult to estimate how effective such a step would be to increase the size of the market.
The IRA should also effect a change in the investment norms governing insurance companies. It needs to be ensured that the government does not preempt the investible resources with these companies for bridging its deficits. And though the levels of pre-emption have come down in the past two years, there is still a lot that needs to be done in channeling that money into the markets.
The logic behind the opening up of the insurance sector is to raise long term funds. However, this can be achieved by opening up the life segment and, not the general insurance segment and even less the health segment.
What the government has tried to do is to kill two birds with one stone. First, it has kept its commitments to open up this sector, albeit partially. It can justify its decision on social grounds. Second, it is hoping that the entry of the private participants will improve not only the physical infrastructure but also the health-care delivery system. It is hoped that the new entrants will be able to give a minimum business commitment to the private hospitals thereby spurring their growth.
