Industry Updates
Outside Interest

• Iris Lai
• August 2019
• 

India plans to permit 100% foreign direct investment for insurance intermediaries, according to the Union Budget 2019-20 presented by Finance Minister Nirmala Sitharaman recently in the Parliament.

The proposal aims “to make India a more attractive FDI destination.” Sitharaman said “time has come that India not only gets integrated into the global value chain of production of goods and services, but also becomes part of the global financial system to mobilize global savings, mostly institutionalized in pension, insurance and sovereign wealth funds.”

This “is a positive move that will provide a holistic development of the insurance industry in the long term,” said Rohit Jain, head of India at Willis Towers Watson. The rise in FDI would bring in more capital, enable company expansion, attract new players and create a more competitive environment.

This proposal will create more direct and indirect jobs, along with bringing in global best practices, strengthening distribution networks and improving insurance penetration. In an era of disrupting technology, Jain said “the hike in FDI will allow companies to bring in the latest technology and digital solutions, which in turn will improve efficiency, services standards and ultimately, benefit policyholders interest.”

“Increased competition, leveraging digital financial services and improved coverage by intermediaries will help fundamental growth in the sector. Considering the current level of underpenetration, increased FDI limits will help deepening of the sector and also provide for growth capital for the sector,” said Monish Shah, partner at Deloitte India.

However, domestic insurance brokers have opposed this proposed policy. The 100% FDI for insurance intermediaries “is not going to increase insurance penetration in India as they will not be focusing on microinsurance or broking in smaller cities and towns,” said Supriya Rathi, director at Anand Rathi Insurance Brokers Pvt Ltd. Rather, they would focus on serving large business or reinsurance.

FDI inflows into India have remained robust despite global headwinds, said Sitharaman. India's FDI inflows saw a 6% growth to US$64.4 billion in 2018-19. Global FDI declined 13% to US$1.3 trillion in 2018.

However, Rathi said “proposing 100% FDI in insurance intermediaries with a view to open up investment across sectors will not likely have much impact on FDI inflows.” When the FDI limit was previously raised from 26% to 49%, only two foreign players increased their stakes in their broking ventures.

“This move will likely benefit just the top two to three global insurance brokers already present in the country and will increase foreign dominance in the insurance intermediary space. Moreover, it may increase outflows from the country as foreign players tend to repatriate their profits,” said Rathi.

The 2019-20 budget focuses on growth-related measures around investments. The insurance intermediary sector “is nascent and its further opening up will help drive maturity in the sector,” said Deloitte in its Union Budget report. This budget comes amidst low growth cycle and subdued investment growth both in the world economy and India.

There were 426 registered brokers in India as of March 31, 2018, according to the Insurance Regulatory and Development Authority of India's annual report. The registered brokers included 363 direct brokers, 58 composite brokers and five reinsurance brokers, according to the IRDAI. Foreign insurance brokers are operating in India through joint ventures formed with local partners. Marsh, Willis Towers Watson, Howden, UIB, Arthur J. Gallagher and Toyota Tsusho Insurance Broker have operations in India.

Earlier this year, Marsh increased its shareholding in its joint venture in India from 26% to 49%, the maximum allowed foreign direct investment for India-based insurance broking firms. Marsh India was one of the first foreign insurance brokers to be registered as a composite broker in the country. Currently, it has more than 600 professionals from its 17 branches across India..

In May, Arthur J. Gallagher &Co. acquired a minority stake in Indian broker Edelweiss Insurance Brokers Ltd. as part of the company's continued geographic expansion.