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'New insurers to enter India if FDI hiked'

Fitch expects several new players to enter the Indian insurance market if FDI cap is raised to 49%.

india Updated: Mar 13, 2006 18:37 IST
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Global rating agency Fitch expects several new players to enter the rapidly growing Indian insurance market in the next few years if the foreign direct investment cap is raised to 49 per cent.

"Several new players are expected to enter India's rapidly growing insurance market in the next one to three years, especially if the FDI limit is raised from 26 to 49 per cent," Fitch Ratings said in a special report.

Most private insurance companies are joint ventures between Indian and foreign partners with foreign partners share capped at 26 per cent.

The increase in FDI will also allow a fresh infusion of capital into the insurance sector, given the business strong capital needs, it said.

India's insurance industry has undergone major structural changes in recent times and now accounts for 10-15 per cent of the country's total financial sector assets.

Despite the strong growth and improving penetration level, the Indian market is still quite small and holds the potential to expand further, Fitch said.

Total gross premiums amounted to Rs 95,140 crore in 2004-05 ($21.2 billion), split roughly 60:40 between life and non-life businesses respectively.

Total (life and non-life) premiums were equivalent to 3.1 per cent of GDP in 2004 as compared to 8.27 per cent in the US, 7.89 per cent in Europe (western, central and eastern) and 7.4 per cent in Asia as a whole.

"This potential for growth is likely to attract more players," it said.

At present, there are 13 private insurers in the life sector and 8 in the non-life sector.

Private insurers are able to increase there share through greater choice in terms of products and services and concerted effort to increase consumer awareness about the benefits and importance of insurance via vigorous marketing, Harlalka said.

Private insurers have also focused on developing alternative distribution channels like corporate brokers, bancassurance, the internet and corporate agents.

These have provided additional ways of getting products and services to customers, and now account for 25-30 per cent of private sector sales.