By Venkatachari Jagannathan, IANS,
Chennai : Foreign life insurers will adopt a wait-and-watch policy before entering India even if the government amends the Insurance Act to increase foreign investment limit to 49 percent from the 26 percent now, say industry experts.
Not only that, even foreign partners of existing private life insurers may be reluctant to hike their stakes — at least initially — contrary to their public stance, the experts maintain.
The reason? Most life insurers are in the red, with profits still eluding early starters, while demand for fresh funds to meet mounting expenditure continue.
As per the latest available data, 17 private life insurers cumulatively have posted a loss of Rs.5,881 crore in 2008-09.
Experts feel the ratio of capital employed by life insurers to premium income is low.
According to Life Insurance Council of India, the total capital deployed by 22 life insurers at the end of last fiscal was Rs.24,838 crore while the total premium earned was Rs.220,184 crore.
“There will be moderation in the arrival of new players in the market even if the foreign investment cap is raised,” said R. Krishnamurthy, managing director of global consultancy firm Towers Watson’s insurance and financial services division.
“Potential entrants are analysing how the market would correct its aberrations and whether there can be a sustainable value build-up,” Krishnamurthy told IANS.
“There is also the important question of finding the right local partner,” he added.
Said a senior official of a private insurer requesting anonymity: “It won’t be a surprise if foreign insurers are reluctant to hike their stake to 49 percent even if permitted this year.”
Reliance Life Insurance president Malay Ghosh added that with each year, setting up a distribution structure would become increasingly difficult and expensive.
“Therefore, new entrants would be advised to study the market carefully, look for opportunities where they can get distribution leverage before entering,” Ghosh told IANS.
Public sector bank-promoted life insurers — SBI Life, Canara HSBC, Oriental Bank of Commerce Life, Star Union Dai-ichi Life (promoted by Bank of India and Union Bank of India) and IndiaFirst Life (promoted by Bank of Baroda and Andhra Bank) — are expected to become profitable sooner than others owing to their large distribution networks.
According to Krishnamurthy, it is not going to be a cakewalk for bank-sponsored insurance firms to break even as they have “not understood” the bancassurance model on integrating sales and servicing in a compliant manner.
“Importantly, sponsoring banks are yet to develop a comprehensive vision about their insurance operations,” added Krishnamurthy, a former managing director of SBI Life.
Echoed IndiaFirst Life managing director and chief executive P. Nandagopal: “Insurers who control distribution costs will be better off. Bancassurance companies may hit the profit track faster if they leverage low-cost distribution potential of their models.”