Analysis: Battered India insurers need more than foreign funds

Tue Oct 9, 2012 11:41pm EDT
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By Sumeet Chatterjee and Clare Baldwin

MUMBAI/HONG KONG (Reuters) - India's proposal to allow more foreign investment in its $41 billion insurance business provides a lifeline for an industry starved of capital and squeezed by regulation - but it may not pass parliament and it may not be enough.

India's insurance business was full of promise when it was thrown open to competition in 2000, but has instead been brought to its knees by losses, regulatory change, uncertainty and a sharp slowdown in economic growth.

Many firms are fed up and looking for the exit.

"What is required is some stability in the regulatory regime, for companies to really focus on business rather than deal with the onslaught of regulatory change," said Rajesh Sud, CEO of Max Life, owned by Max India and Japan's MS&AD Insurance Group.

Last week, the government sought to remove a key barrier to bringing in much-needed capital by proposing to raise the cap on foreign ownership of insurance firms to 49 percent from 26 percent.

But the measure, part of a series of sweeping economic reforms, requires parliamentary approval, which will not be easy given that the ruling coalition is technically in a minority and other recent reforms have inflamed populist opposition.

Workers at former state monopoly Life Insurance Corp of India, which has a 70 percent market share and about 1.3 million agents - as many as those employed by the 23 private sector firms - have held street protests against the proposal.

The life insurance industry, which makes up about three-quarters of the sector, has lost a combined $4 billion in the past decade and was battered by a 2010 clampdown on the sale of lucrative equity-linked products.   Continued...

An employee of the life insurance company ICICI Prudential speaks on a phone in the company's office, in Mumbai June 19, 2007. REUTERS/Arko Datta