Chasing the Chimera of insurance

And this is what is worrying the foreign companies. The Government has not explained whether foreign companies will be allowed to pick up a stake with Indian insurers and what will be the equity limit. The IRA Bill was not introduced in the current session of the Parliament and there is no assurance that the Parliament will be pass it without hiccups. The Government will also have to amend Acts which grant monopoly status to the GeneralInsurance Corporation and Life Insurance Corporation. “Government have made promises like this in the past, but nothing has come out of it. Is there any compelling reason to believe that this Government will deliver?” asks a representative of an overseas insurer. Former Finance Minister P. Chidambaram had set up the IRA and announced that foreign companies could pick up minority stake in health insurance joint ventures. But the promise died with the United Front Government.

If the Government has announced a clear timetable, and even introduced the Bill in the current session, the uncertainty would have been much easier to handle, feel industry sources. There are more than a dozen foreign companies which have signed a memorandum of understanding with Indian companies as a preamble to the opening up of the sector.

The Government may have wanted to bring some cheer among the hopefuls by its announcements but the mood hasn’t improved significantly. Such is the situation that no foreign insurer is willing togo on record with its reaction. Says the head of a European insurance company, “We have seen statements of intents in the last three budgets. But there are still no details coming. How can any one react?” While pulling out is a distant prospect, the foreign companies worried about the rules of operation.

Foreign companies are unlikely to be happy with any stake below 26 per cent which allows them veto powers in the joint venture company’s board. The Government has still not decided what the equity stake will be. Political opposition may just force the Government to defer foreign participation. But equity stake though an important issue is not the only issue.

“If the Government makes other rules which make operations unviable, then we will have to rethink our participation in Indian insurance business,” says a US insurance company’s representative. The companies may be willing to wait — some waited for over seven years to enter China — but none will put up with restrictive rules. “Only about threeper cent of the General Insurance Corporation’s business lies in the rural areas. But if the Government says that foreign companies must have at least 5 per cent of the business from rural areas, then it will be impossible to agree. How can we be expected to do better than the market leader?” asks the European company head.

Even before the insurance sector is opened up, the relationship between foreign and Indian partners is uneasy at best. Foreign companies would be happy to enter on their own, but have no choice but to tie-up. Indian companies know that they can’t run an insurance business on their own so they have to bring in a foreign partner even if they do not want to. “In the long run, we will have to give majority holding to the foreign partner because a joint venture with a minority equity will not work out,” amidst the head of the insurance unit of an domestic business house.

The fear that the public sector companies will suffer because of competition is largely unfounded. Countries whichopened their market found that while the share of the public sector fell, the absolute volume of business grew as the market itself expanded after competition. In China for instance, the People Insurance Company of China (PICC) was effectively the monopoly insurance supplier of Shanghai. But after competition was introduced in the early nineties, its market share dropped. In life insurance its share fell to 38 per cent in 1996 from 46 per cent the year before, but the its volume of business grew eight-fold.

“Even if the Government is able to able to pass the IRA Bill by the end of this year and all other necessary legislations are in place, it will take two to three years for private insurers to be operational,” says a senior executive of a Government-run company.

To begin with, the IRA will have to come up with the rules and regulations of operations for eh private players. Though sources say that IRA has already done much work in this regard and once it achieves statutory status, it will announce thispromptly. After the basic norms are announced, the companies will apply to licences. Accepting applications, vetting them and and granting licenses will take six to eight months. After which the companies will need about an year to set up its offices and organise itself before launching new products.