By Suresh Agarwal
Our country’s parliament passed the Insurance Amendment Bill 2021 to increase the foreign direct investment (FDI) limit in the insurance sector to 74% from 49%. The hon’ble union finance minister, Nirmala Sitharaman had proposed this positive move in the last Union budget which got a final nod from the Cabinet Committee on Economic Affairs.
The insurance industry has highly welcomed this move, which is likely to give the much-needed growth impetus to the sector, including the non-life segment. Let’s try and understand how this move is likely to impact the sector, the services, the customers and the economy at large.
The ongoing pandemic has had far-reaching effects on all of us, impacting lives, livelihoods and businesses. The insurance business too has been impacted. While we witnessed the health insurance segment registering fairly robust growth, motor and life insurance segment slowed down. Foreign investment can give the much-required financial shot in the arm for expanding distribution and operations, post-pandemic.
The pandemic has also taught us the importance of financial security and the need for insurance. However, if we look at the numbers, overall insurance penetration in India is close to 4%, compared to a global average of around 7%. Non-life penetration stood at barely 1%. With a population of more than 1.3 billion, India requires far higher insurance penetration than any other nation. Increase in foreign investment limits, which will boost insurance distribution, is also likely to positively impact insurance penetration.
Another positive impact area could be job creation. Thousands of jobs were lost as a result of companies downsizing due to the pandemic. In a post-pandemic world, adding more jobs will be extremely important to provide an impetus to economic recovery. More investments are likely to trigger expansion plans for insurance companies that will look at reaching out to more people and create more jobs in the process.
Having looked at the positives for the industry and the economy, leaves us with the question – what does it mean to the end consumer? As we have discussed above, positive moves are cyclic in nature and trickle-down benefiting every stakeholder in the funnel. With more investments pouring in, competition in the sector is likely to pick up. This could mean a lot of choices for the customer which again, will translate into better services, competitive products and pricing, technological innovations etc. Another area that I see getting impacted from a consumer lens could be higher inclusion of the rural and semi-urban population. More investments will give insurance companies the required muscle to scout for newer geographies and customer segments.
Undoubtedly, this an extremely positive step towards the overall development of the sector and hope we can cover maximum lives in India, thereby bringing true financial inclusion.
(Suresh Agarwal is MD & CEO at Kotak Mahindra General Insurance Company. Views expressed are the author’s own)