Fresh money coming in from raising the foreign direct investment (FDI) limit in the insurance sector to 49% from the existing 26% will boost expansion plans of insurance companies. Major portion of the capital is likely to be invested in opening branches in semi-urban and rural areas and hiring new workforce to increase the penetration of life insurance products in the country.
“Insurance companies will invest the money to expand the business,” said Vibha Padalkar, executive director and chief financial officer, HDFC Life. “Companies will increase the number of branches and strengthen the distribution network by increasing work force.”
At present, private insurers are limited to urban areas and have been going slow in expanding in semi-urban and rural areas mainly due to lack of funds. With the economy slowing down, companies are struggling to raise cash to fund their expansion plans. Experts believe that small companies in the sector will benefit the most from the increase in FDI limit.
“Smaller players are capital starved and fresh capital will be beneficial for them to expand business,” said Puneet Nanda, executive director, ICICI Prudential Life Insurance. “Life insurance is capital-intensive where long-term capital is required for growth.”
At present, there are 24 players operating in the life insurance industry including 22 joint ventures with foreign participation to the extent of 26%. In India, the life insurance penetration is only around 4.5% of the total population.