Volume : VI, Issue : III, March - 2017

INSURANCE SECTOR, POST THE FDI HIKE

Deepa T M

Abstract :

 After a great deal of deliberations, foreign direct investment (FDI) in the country’s insurance space has been raised to 49 percent from 26 percent.  The move has been welcomed by all the major stakeholders associated with the insurance industry. Small and mid-size life insurance players who do not have adequate capital to underwrite new policies are particularly elated. This is understandable given the low level of insurance penetration in the country.  The implication is that the industry can absorb a huge amount of capital from the investors.  Then there are players who are capital-adequate at least in the medium term and have been clocking profits for the past few years.  They may be interested in offloading a part of their stake to foreign investors provided the premium is attractive. Alternatively, they can go public to raise additional capital for their long term needs.  The hike in FDI cap could lead to a shakeout in the insurance space considering that several life insurance players have too small a presence in the market to be viable.  Either they have to sell themselves out or merge with a larger player.  In the circumstances, the researcher believes that the regulator (IRDA) as well as the government should immediately ensure that the ecosystem is conducive to such a shakeout by updating the guidelines that deal with the developments triggered by such shakeouts.The shakeout will occur sooner rather than later since having made the investment decision, the prospective investor would not like to wait.  After all, capital carries a cost and time overrun leads to cost overrun and cost overrun affects the bottom line of the investor.  Hence the tax aspects, ownership aspects, etc, that the shakeout could give rise to, should be carefully considered by the regulator and the government to avoid unpleasant consequences as was witnessed on the subject of MAT applicability to FIIs.  The country has already earned some notoriety for policy instability and policy inconsistency.  Hence the researcher concludes that any delay in devising remedies to these possible issues will affect the country’s investment climate and the business environment. It is something the country can least afford now!

 

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Article: Download PDF    DOI : https://www.doi.org/10.36106/gjra  

Cite This Article:

INSURANCE SECTOR, POST THE FDI HIKE, Deepa T M GLOBAL JOURNAL FOR RESEARCH ANALYSIS : Volume-6 | Issue-3 | March-2017

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