July 9, 2019 Fdiindia
The recent announcement by Finance
Minister, Nirmala Sitharaman to raise the limit for foreign direct investment in
the insurance intermediaries sector from 49 per cent to a 100 per cent has not
gone down well with domestic brokers. The industry in question accounts for Rs.
4,500- 5,000 crore.
The insurance intermediaries sector
includes insurance broking, insurance companies, third party administrators,
surveyors and loss assessors.
“The government has taken a view on increasing FDI in India in the sector from a macro perspective. The move will have both pros and cons,” noted G Srinivasan, Director, National Insurance Academy, and former Chairman, New India Assurance.
This proposal by Sitharaman has come under
flak from domestic insurance brokers, consisting of direct brokers, reinsurance
brokers, and composite brokers. As per them, the insurance broking industry
does not require much capital and permitting 100 per cent FDI into the sector
won’t ensure large equity inflows of foreign investments.
The sections benefitting from this move in
the insurance industry are: insurance surveyors and loss assessors, third party
administrators (TPA), web aggregators and corporate agents.
As of now, the insurance broking industry
deals with a premium amounting to more than Rs 30,000 crore, primarily from the
non-life industry which generated over Rs 1,70,000 crore of premiums during the
period 2018-19.
As insurance brokers receive between 15-20
per cent of commission in placing different categories of general insurance
business, they account for around Rs 4,500-5,000 crore of business.
According to Sohanlal Kadel, the former President of lnsurance Brokers Association of India, permitting 100 per cent FDl in India in broking when it is 49 per cent in insurance companies would be “travesty of justice as it would be a direct discrimination against local insurance brokers”. Further, this would decimate most of the Indian brokers engaged in direct insurance and reinsurance broking and who do not have a joint venture with any overseas broker. “It is very clear that 100 per cent FDI will not make any valuable contribution to the industry from the current permissible FDI limit of 49 per cent except perhaps repatriation of profit which can be more than the capital they bring in and thereby drain of our foreign exchange,” Kadel further said.
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