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FDI in insurance: Slugfest on between local, global brokers

When the Parliament allowed 49 per cent FDI in insurance, the government framed the rules in such a way that FDI in broking is restricted to 49 per cent.

By: ENS Economic Bureau | Ahmedabad/vadodara/mumbai, Mumbai |
June 16, 2015 3:25:32 am

An intense tussle is on between foreign and Indian insurance brokers on the issue of higher foreign direct investment (FDI) in the domestic insurance broking industry.

The Insurance Brokers  Association of India (IBAI) has staunchly opposed the demand of oversees insurance brokers to raise FDI from 49 per cent to 100 per cent in the domestic insurance broking industry. After the Parliament passed the 49 per cent FDI stake, foreign insurance brokers have started lobbying with the government and the insurance regulator IRDA to raise this stake to 100 per cent as the rules governing broking business may not require another amendment by the Parliament.

“We understand that certain sections of the insurance intermediaries are actively interested in 100 per cent FDI into insurance intermediation. We strongly request and suggest the IRDA and the government of India  that the Rule should not further be amended to enhance the FDI beyond 49 per cent, which would affect the control of the insurance broking companies, in the hands of foreign brokers including foreign portfolio investors,’’ IBAI said.

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Maintaining that the latest amendment in the Insurance Act to allow 49 per cent FDI with Indian ownership and control of insurance companies  is a good measure and will fully protect the interests of the Indian broking companies, IBAI argued that 100 per cent FDI stake in insurance intermediation will shift the control into the hands of foreign entities and shouldn’t be considered at all by the authorities. Foreign players have been arguing that higher FDI is required to bring in required expertise and connectivity.

In 2013, IRDA had appointed a committee under its senior director Suresh Mathur to look into the possibility of 100 per cent FDI in broking business as the Insurance Act did not specically mention about limiting foreign direct investment to 26 per cent in broking. When the Parliament allowed 49 per cent FDI in insurance, the government framed the rules in such a way that FDI in broking is restricted to 49 per cent.

The Association has said that even with 49 per cent foreign direct investment limit, there are many instances where (holding 51 per cent collectively but in a fragmented  form) the foreign partner is the ‘largest shareholder’ for all practical purposes.

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First published on: 16-06-2015 at 03:25:32 am

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