Foreign Insurers Set to Invest Heavily in a Cash-Starved India Market

India’s latest move to liberalize its insurance sector may create the long-hoped-for opening for foreign insurance companies to advance into the under-developed market. But while business is thriving, foreign insurers must face reality checks in the form of the country’s limited capacity for infrastructure and system supports, competition from public insurers, operating expenses and investment costs.

The Indian Parliament’s raising of direct foreign investment limits in insurance ventures from 26% to 49%, if enacted in December, will mark a milestone in India’s insurance industry since the opening of the sector for private and foreign investors in 1999. Since then, insurance sector has been expanding by an average of 25% per year, according to PricewaterhouseCoopers in a recent report.

Underlying factors for liberalization are being driven by fundamental developments in the country’s insurance market, in which foreign capital injection and knowledge are important to fuel the growth of distribution and product promotion.

Prior to the partial opening of the market, the insurance sector was controlled by a handful of state-owned enterprises. In the absence of competition, product choice was largely limited to endowment and money-back life policies and fire and property policies, according to PricewaterhouseCoopers.