March 13, 2015
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. .