Insurance Bill 2015

It’s much more than just higher foreign stake …

After a wait of 7 long years, the Insurance Bill finally saw the light of day. One can argue that allowing the foreign players to increase their stake from 26% to 49% does not materially change anything. They still do not get full operational control. But that is off the point. What is critical is that a start has been made. Here is how…

A $4 billion deluge…

An inflow of Rs.25,000 crore is the figure that is being spoken about. Of course, not all this will come in as fresh IPOs. A large chunk will also involve Indian promoters hiving off their stakes. But the fact is that foreign flows will still come in. With the current account deficit moving closer to the neutral mark, the entire flow will add to the RBI forex reserves. More importantly, it will also open the doors for much larger private participation in ownership of insurance companies in India.

More power to IRDA…

This could be the biggest take-away from the Insurance Bill. Once the flows start coming in, IRDA will become a full-fledged regulator like SEBI. Effectively, IRDA will get more power to levy penalties, fix remuneration of agents, fix maximum expense ratio as also to heavily penalize agents and companies for mis-selling insurance products. The US has been quite stringent on mis-selling and stiff penalties could become the norm in India too. This is critical because an empowered regulator has been central to the growth of any market. We saw that in capital markets and the insurance sector too should benefit from a stronger regulator.

New products in the offing…

Foreign money means many things beyond a higher stake. It gets global technology, global best practices and global product innovations. Re-insurance is big business globally, but very limited in India. This bill could pave the way for the likes of Berkshire Hathaway, Munich Re and Swiss Re to enter India and develop the re-insurance market in a big way. That could be a game changer!

A statement on pushing reforms…

After the fiasco surrounding the Land Acquisition Bill, the major concern for investors was on the reforms front. If reforms got deadlocked in the Upper House, that could have been bad news for reforms. Thankfully, the ruling party’s floor management has helped and they could get the requisite support of the opposition parties in the Upper House. That is a key vote for reforms.

The passage of the Insurance Bill will reassure investors that an Upper House minority will not be an impediment to the reforms process. From a macro perspective, that may be the biggest lesson from the Insurance Bill! ©

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