In its quest for faster economic growth and development, India is overlooking a major segment that can contribute and support this goal. The country is lagging far behind others in the vital reinsurance business, while others like Dubai, Brazil, China, Singapore and even Mauritius have stolen a march over India by setting up reinsurance hubs.
It is now 13 years since the insurance segment was opened up in India, but the reinsurance business, through which insurers diversify their risks, has failed to make any headway in the absence of global players. While many global insurance giants have set up representative offices here, top reinsurers have ignored launching full-fledged operations. Lloydís of London has prefered branch operations in the country and is unwilling to enter into joint ventures (with a 26 per cent exposure).
There is merit in the recent proposal of insurance companies and brokers for a separate Reinsurance Bill, which will help in the formation of a reinsurance hub in Mumbai. Such a hub can help India unlock the full potential of insurance as a catalyst for economic growth, enabling entrepreneurs to take risks and thereby fuel innovation.
The entry of global reinsurers can further support the underwriting activities of Indian insurance companies and encourage more domestic investment in Indian insurers.
Currently, state-owned GIC Re, which is the sole reinsurer in the domestic reinsurance market, is also spreading its wings globally. Operating from a hub will give GIC Re more global recognition and acceptability. From a regulatory point of view, it makes sense as the reinsurance business involves spreading of risks to the reinsurer situated in different jurisdictions. Currently, the reinsurance premium for the risks is ceded abroad leaving little control by Insurance regulator IRDA on such business. By allowing foreign reinsurer to set up branches, the IRDA will have better control over the working of reinsurers and can ensure that premiums collected by the branches of foreign reinsurers are invested in India as well as make available to them the technical skills for assessing the risk.
George is a Senior Editor based in Mumbai.