Does India need FDI in Insurance?

Does India need FDI in Insurance?

Introduction

The BJP government is more towards focussing on the economy and its development, rather than concentrating on the consequences of their decisions and moves. Next to the real estate, the Foreign Direct Investment into the Insurance sector has initiated agitation into the insurance sector. The employees are already against the introduction of FDI into the insurance. The sudden change in the approach of the BJP led NDA government in getting the Insurance Law Bill passed, which had been presented by the UPA government in 2008, has stirred up the nation. Does India really need FDI in Insurance Sector?

Yes

- It will provide additional source of finance for insurance companies

- It will promote development of insurance sector by bringing in more products & features in this sector, by way of sharing knowledge with foreign investors

- Insurance companies funded by FDI may have lower cost of capital and better operating efficiency thus resulting in cheaper and better cover to end consumers.

- FDI in Insurance will introduce more competition in this market which will improve the services of the existing players also.

- We have seen in the past as well, competition teaches new strategies, better management and more focus on customer satisfaction. So, this would ultimately benefit the customers.

No

- Higher stake holding by foreigners would mean higher foreign control on the insurance company, thus runs a risk of having some decisions which are not in the best interest of domestic consumers.

- Foreign Direct Investment is money put in to our country by financial institutions or individuals of another country, and thus some or most of the profit made would at some point move outside our country and invested or spent in another country or home country.

- Different countries have different regulations in insurance sector, Government may need to relax some regulations in order to encourage FDI which may not always be in best interest of the country.

- Non FDI funded domestic insurance companies may have higher cost of capital and they would need to find ways of competing with lower premium offered by FDI funded insurance companies.

- There are already a lot of players in the insurance field which means that the competition already exists and services are quite good. LIC is one of the best companies in insurance sector offering one of the best and quickest settlements to the customers. Not much of competition is desied in this field.

- If the government is worried about the customers, it should make the laws stronger to ensure that the customers do get their deserved and promised benefits.

Conclusion

There are always pros and cons of each decision, FDI will increase competition and basis economics would suggest that when the supply increases as compared to demand the prices will come down, thus benefiting the end customers. The insurance sector in India is still under developed as compared to developed countries, and despite private players now allowed to enter this sector, we only have a small number of providers. FDI would increase the number of insurance companies and may also make possible better plans at lower prices. But careful consideration is required to ensure that the investment stays for long term and does not get withdrawn, leaving the companies and their domestic customers in a miserable position, and not all profits are moved outside the country but some reinvested or spent in our country. Regulations need to be revisited to ensure that Insurance Companies are subject to relevant and strict governance.