MUMBAI, DEC 25: Will the government decision to throw open insurance sector to private companies hit the existing public sector companies? Unlikely, says a study by KPMG India, adding, ``the threat of new players taking over the insurance market has been overplayed''.``Nationalised players (LIC and GIC) will continue to hold strong market share positions, but there will be enough business for new entrants to be profitable,'' it said. KPMG also took potshots at new insurance companies saying that ``new companies often over estimate the need for insurance expertise. They assume that a joint venture is the most appropriate type of alliance when, in fact, many forms are possible''.What is the likely impact of opening up India's insurance sector? ``An often-voiced concern is that private players especially foreign ones, will swamp the market, grabbing a large share. This hypothesis has been disproved in emerging markets worldwide. We believe that threat has been overplayed in India,'' it said.While the impact of global operations on their business may be large, typically foreign insurers take only a small share of an individual country's market. In Taiwan for example, foreign companies took only a 3% share even seven years after opening up the sector. In Korea, their share was only one per cent after 20 years. In China, a large and complex market like India, private insurance companies have not made much headway.Nationalised insurers are hampered by their large scale of operations, public sector bureaucracies and cumbersome procedures. ``Therefore, potential private entrants expect to score in the areas of customer services speed and flexibility. They point out that their entry will mean better products and choice for the consumer. Critics counter that the benefit will be slim, because new players will concentrate on affluent, urban customers as foreign banks did until recently,'' KPMG observed.Multinational insurers are indeed keenly interested in emerging insurance because their home markets are saturated while emerging countries have low insurance penetrations and high growth rates. International insurers often derive a significant part of their business from multinational operations. As early as 1994, many of the UK's largest life and general insures derived 40 per cent to 60 per cent of their total premia from outside their home markets. The figure at Commercial Union was 76 per cent in that year.``Insurance, even more than banking, is a volumes game. A very exclusive approach is unlikely to provide meaningful numbers. Therefore, private insurers would be best served by a middle-market approach, targeting customers segment that are currently untapped. We anticipate that many new players will indeed take this approach, extending the benefits of a freer marketplace to a wide base of customers,'' KPMG said. Faced with competition, nationalised insurers will improve their game, as they are already trying to do. The customer will be the beneficiary.LIC chairman G Krishnamurthy had recently gone on record saying "I don't expect them to take away my share. My growth rate will remain because they (the new firms) will tap untapped markets". LIC's premium income grew by nearly 19% to Rs 22,810 crore ($5.2 billion) in the year ended March 1999. LIC's total income, including investment earnings, during the year rose to Rs 36,350 crore. LIC alone employs around 125,000 people in 2,048 branches around the country.LIC has also been hamstrung by severe restrictions with government rules forcing it to invest 75 per cent of its premium income in so called "socially oriented" schemes, which means funding low yield infrastructure projects and government debt. This is one area where private insurance companies will score over public sector firms. The new players are required to invest policyholders' funds only in India.
