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India’s Parliament has voted to increase the foreign investment limit in the insurance industry to 49% from 26%, in a long-awaited historic move which is the first major legislative victory for Prime Minister Narendra Modi as he seeks to reform the Indian economy.

The insurance Bill was approved by the upper house of Parliament or the Rajya Sabha last night, after a heated debate and a walkout by some opposition lawmakers. The Congress Party and some other opposition parties backed Mr Modi’s National Democratic Alliance in voting for the Bill which was passed by the lower house or the Lok Sabha on 4 March. The Bill, which had been pending since 2008, needed to be approved by both houses. It will be signed into law by President Pranab Mukherjee. .

The new insurance law will liberalise the Indian insurance industry. About INR200 billion (US$3.2 billion) of investment is likely to be attracted into the sector over the next few years, KPMG India Partner, Mr Shashwat Sharma, said. Several foreign investors with a stake already in Indian insurers are set to increase their investments while new overseas investors would seek to enter the market. In a reaction, Mr Ajay Bimbhet, Managing Director of Royal Sundaram Alliance Insurance, said: “This passing of insurance bill is a historic move for the Indian insurance industry. Universal health being one of the primary motives of the new government, we can expect a sizeable FDI inflow into the Indian insurance industry. The investments would be channeled towards product innovations and to increase market penetration. With better economic conditions now, we can expect a double-digit growth for the entire industry. We remain optimistic on the development.” .

Mr Sandeep Patel, Managing Director and CEO of Cigna TTK Health Insurance, said that the new law represents “a paradigm shift moment for the Indian insurance sector“. He said that the legislation will further support the development and enhancement of the health insurance industry with an infusion of capital and its ability to operate as a separate line of business. The investments and separate business classification will promote customer-centric product and service innovations, help in improving technology and deepen market penetration besides improving distribution efficiencies. Just prior to the vote in the Rajya Sabha, news emerged that ICICI Bank, India’s largest private-sector lender, is in talks to sell part of its stake in the country’s biggest private-sector life insurer to the Singapore government’s investment company, Temasek Holdings, and European asset management company, Carmignac Gestion, for about US$300 million, according to a Bloomberg report. .

The bank plans to complete an agreement to sell about 5% of ICICI Prudential Life Insurance by the end of this month, the report said, citing unnamed sources. ICICI owns 74% of the life insurance joint venture, with the remaining 26% held by UK insurer Prudential. In addition, among the long list of foreign partners interested in raising their current holdings in Indian insurance ventures are Germany’s ERGO Insurance, Britain’s Standard Life, Japan’s Mitsui Sumitomo of Japan and UK-based health group Bupa. .

The economic output at risk of flooding in India, the world’s second most populous nation, may surge 10-fold by 2030 as cities expand and climate challenges worsen, according to the US-based World Resources Institute.

A new online global flood-analyzing tool developed by WRI and four Dutch research agencies estimates that India’s current GDP exposed annually could increase 10-fold from US$14 billion to US$154 billion by 2030, reported Bloomberg. India also faces more potential change in exposed GDP than any country. China is next at US$98 billion. India tops the list of 163 countries studied that have populations affected by river flooding. The other four countries in the top five are also in Asia; namely, Bangladesh in second place, then China, followed by Vietnam, Pakistan and Indonesia, the tool showed. .

The cost and loss from floods played out last September when India deployed 300,000 military personnel in the Himalayan state of Jammu and Kashmir to rescue 130,000 people after a week of rain caused riverbanks to burst, killing about 500 in India and Pakistan. In 2013, the worst flash floods in 90 years killed 580 and left 5,000 more missing in the northern states of Himachal Pradesh and Uttarakhand. .

River flooding currently impacts 21 million people worldwide on average and costs US$96 billion in GDP each year, according to the analysis. In 15 years, those numbers may grow to 54 million people and US$521 billion in GDP affected annually.

The Insurance Regulatory and Development Authority of India (RDAI) also said that the insurance servicing activities of the insurance marketing firms will include undertaking back-office activities of insurers as allowed in the guidelines on outsourcing activities by insurance companies, and becoming approved persons of insurance repositories, reported the Business Standard. They can also undertake survey and loss assessment work by employing licensed surveyors & loss assessors. .

Under these rules, insurance marketing firms can market and service insurance through insurance sales persons, apart from marketing other financial products through financial service executives. These include products of mutual fund companies; pension products of the Pension Fund Regulatory and Development Authority; other financial products distributed by the Securities and Exchange Board of India and licensed investment advisors; and banking/ financial products of banks/ non-banking financial companies regulated by the Reserve Bank of India. .

In general insurance, insurance marketing firms can deal with only retail insurance products including motor, health, travel and other similar policies. An insurance marketing firm should have a minimum net worth of INR1 million (US$16,140) . It has to designate a principal officer who shall be the overall in-charge and shall be responsible for regulatory compliance. The licence given to such a firm is renewable every three years.

India’s insurance sector is expected to quadruple to about US$250 billion over the next decade from around US$60 billion at present, according to a study by the Confederation of Indian Industry (CII) prepared in partnership with consultancy firm McKinsey & Co. The report said that the Indian insurance industry is currently the 16th largest market in the world and is expected to be one of the top 10 markets by 2025. .

The study, “India Insurance Vision 2025” recommends an inclusive and progressive growth strategy for the industry . Such a strategy would enable the Indian life insurance industry to achieve 12% compounded annual growth rate (CAGR) to reach US$160 billion and the non-life insurance industry to see 22% CAGR to US$80 billion over the next 10 years, the report said. .

“The last few years have been challenging for the industry with declining growth in life insurance premiums and significant challenges in non-life profitability. This was driven by a combination of macroeconomic factors and structural challenges inherent in the insurance industry. “However, an improving economy with potential regulatory reforms and concerted action by industry players can usher in an era of significant growth as well as value creation,” the report added. .

Mr Analjit Singh, head of the CII national committee on insurance and pensions and Chairman of Max India, said that the industry has the potential to grow three to five times in size over the next decade. “For this to happen, policy action by the regulator, collaboration between players, and the individual player’s push to develop distribution and technical capabilities, would be critical,” he said.

The central government is planning to set a limit on the liability arising from road accidents in a move that will come as a relief to insurers which are facing heavy losses from third-party motor insurance. .

The government mooted the idea in the draft Road Transport Safety Bill released last year, where it mentioned the need to set the maximum liability limit in consultation with the insurance regulator. It also proposes that vehicle owners buy additional insurance to protect themselves from liability. Under the current system, there is no ceiling on payouts that insurers have to make in motor liability cases. The compensation amount is decided by the courts. In the case of road accidents, compensation as high as INR500 million (US$8 million) has been awarded, depending on parameters such as the income and the future earnings potential of the victim. .

“Having a maximum liability limit in third party motor insurance will help moderate premium increases,” Mr Vijay Kumar, Chief Technical Officer (Motor Insurance) at Bajaj Allianz General Insurance, told Hindu Business Line. He pointed out that while the value of claims rose by about 25% every year, the increase in premiums fixed by the regulator rose only by about 10%. .

A ceiling on motor liability compensation would help reduce costs for insurance and can lead to lower insurance premiums. This in turn will help address the issue of the large number of uninsured vehicles, said Mr Mukesh Kumar, Executive Director, HDFC ERGO General Insurance.

Insurers are seeking a 40% increase in third party motor insurance premiums this year as they have been reeling under a claims ratio of around 120% and estimated losses of INR120 billion. Third-party motor insurance coverage is mandatory by law and the premium is decided by the Insurance Regulatory and Development Authority of India

Vehicle owners are likely to have to pay higher premiums for third-party motor insurance from the next financial year which begins on 1 April. .

The Finance Ministry has asked the Insurance Regulatory and Development Authority of India (IRDAI) to allow a bigger annual increase than usual in such premiums in the wake of huge losses suffered by general insurance firms. The goal is to prepare the country’s four state-owned general insurers for better valuations for disinvestment purposes, reported the Indian Express newspaper. .

General insurance companies face losses of INR40 billion (US$645 million) to INR50 billion in third-party motor insurance business. The chairman of a general insurance company confirmed that after being briefed on the losses in this line, Finance Ministry officials took up the issue with IRDAI. .

The insurance regulator sets the third-party motor liability tariffs. Though non-life insurers ask for a higher hike in the tariffs every year, IRDA only allows a moderate increase.

India’s insurance regulator is looking to make it mandatory for companies to settle life insurance claims within 60 days, in a move that will provide relief to millions of claimants..

Under this proposed rule, if a claim is not settled within 60 days, the beneficiary can take the insurer to court. Currently, the rules mandate that all claims have to be settled within six months, and most insurers stick to this limit but there have been several cases where it has been breached, reported Hindustan Times. The Insurance Regulatory and Development Authority of India (IRDAI) has issued a draft circular to life insurers seeking their response to the proposal to reduce the claim investigation time. .

Insurance companies are, however, wary of the move. “In case there is an increase in claims which are not genuine and companies have no time to investigate them thoroughly, it would in the long run impact the industry,” said a senior executive at a private insurance company on condition of anonymity. Life insurance firms said most claims are resolved within a couple of weeks but about 15% of cases come under scrutiny due to lack of required documents or disputes. .

A“In some cases, which require investigation, it does take months to check the authenticity of the claim, as sourcing information from various agencies like hospitals and police authorities can take time and is beyond the control of life insurance companies,” Mr V Viswan and, senior director and chief operations officer, Max Life Insurance, told Hindustan Times.

Private insurers are shutting their branch offices in small towns due to the lack of profits from these areas, leaving the only state-run life insurer, Life Insurance Corporation (LIC), to bear much of the burden of financial inclusion in the country..

LIC opened 1,313 offices during the financial year ended 31 March 2014 while private insurers closed down 732 offices and opened 166, taking the net reduction in offices of private insurers to 566 during the fiscal year, reported. .

The Economic Times citing the recently released 2013-14 annual report of the Insurance Regulatory and Development Authority of India (IRDAI). Private insurers had closed down 1,097 branches in the previous year to cut costs..

At the end of last March, of the total 11,032 total offices of life insurance firms in the country, LIC had 79.6% of its branches in small towns while its private peers had 57.95%. Instead of expanding their footprint — which calls for capital to set up new branches and investment in training of staff —life insurance companies are investing in technology to reach out to prospective customers and enable smoother issuance of policies..

Seeking to increase insurance penetration in the country, the central bank – Reserve Bank of India (RBI) – has issued final guidelines to allow banks to act as brokers for insurers, set up their own subsidiaries and also undertake referral services for multiple companies..

“Banks may undertake insurance agency or broking business departmentally and/or through subsidiary,…,” RBI said in its guidelines for entry of banks into insurance business. Banks are also allowed to set up subsidiaries and joint venture companies for undertaking insurance business with risk participation, it said. They can also act as corporate agents without seeking prior approval from the RBI. However, they will have to comply with guidelines of the Insurance Regulatory and Development Authority of India (IRDAI). .

The new guidelines allow banks to act as brokers permitting them to sell insurance policies of different insurance companies. The guidelines follow an announcement made by the former Finance Minister P Chidambaram in 2013-14 Budget. According to the final RBI norms, a bank can enter insurance broking only if their capital to risk (weighted) assets ratio is 10% and above, and the net worth of the bank should not be less than INR10 billion (US$162 million). In addition, the net non-performing assets (NPAs) of a bank should be less than 3% of overall assets to be eligible for insurance broking. Many public-sector banks will be rendered ineligible because of this clause. According to bankers, their priority is now to tackle the rise in NPAs and improve the bottomline, rather than venture into a new sector. Bancassurance currently follows a corporate agency structure. This means that banks sell insurance as a corporate agent and these regulations allow each bank to sell insurance products of only one life, one general and one health insurance company each..

Mr Amitabh Chaudhry, managing director and chief executive officer of HDFC Life, told Business Standard that unless mandated to do so, banks might not be interested in becoming brokers. He added it is less onerous to be a corporate agent than a broker. The chief executive of a mid-size private life insurer said that a bank’s ownership of a stake in an insurer would restrain players from taking the broking route. “Once these banks become brokers, they would not be in a position to push products of their group companies. Private insurers, which get almost 60-70% of their new business from parent banks, might see a sudden slump if their parent bank becomes a broker. This is not something the shareholders would approve,” he said. Top private insurance companies are backed by banks, which will find a conflict of interest in the broking idea. For example, ICICI Pru Life, SBI Life, HDFC Life, IDBI Federal, SUD Life, Kotak Life and IndiaFirst are backed by banks like ICICI, HDFC, SBI, IDBI, Federal bank, Bank of India, Union bank of India, Kotak Mahindra, Bank of Baroda and Andhra Bank. .

GMeanwhile, IRDAI is evaluating fresh rules for banks to act as intermediaries for insurers in the wake of the RBI guidelines and changes made last month to the insurance law through the Insurance Ordinance. The categorisation of banks (corporate agents), brokers and agents has been altered and all of them are termed as ‘insurance intermediaries’ under the Ordinance. With the change, all intermediaries can seek partnerships with multiple insurers. This change is expected to significantly benefit insurers that do not have a major bank alliance partner. These include Reliance Life Insurance, Exide Insurance, Future Generali, Birla, Bajaj, Aegon Religare, Bharti Axa, Shriram Life and Sahara Life..

General insurance premiums are unlikely to harden this year despite record high catastrophe claims in India last year, as reinsurance rates have cooled internationally because of a flood of liquidity in the market and fewer calamities worldwide, according to industry executives. .

“International rates have softened by 10-20% during the treaties (reinsurance contracts) that have come up for renewals now,” The Economic Times reported, citing a senior executive of state-run General Insurance Corporation. “There are claims in the aviation sector but not big enough to harden the rates,” the source added. .

While there were fewer catastrophe claims globally last year, the situation was different in India. The Kashmir floods last September and Cyclone Hudhud in October on the east coast led to a higher number of claims in the local market. But their impact on premiums will be offset by the lower international rates, say the executives. .

Reinsurance capacity in the international market has increased with the entry of new players and that should also help keep the rates low, said Mr KK Mishra, Chief Executive of Tata AIG General Insurance. Another factor is liquidity. Big global reinsurance firms have raised around US$14 billion by issuing catastrophe bonds in 2014. .

Global reinsurers such as Munich Re and Swiss Re renew two thirds of their annual treaties with various non-life insurers in January, and the rest in April and July. In the Asia-Pacific, including India, renewals are typically effective from 1 April.