Fdi in Insurance India

1574 Words Mar 30th, 2011 7 Pages
FDI in Insurance
Introduction
The insurance sector in India used to be dominated by the state-owned Life Insurance Corporation and the General Insurance Corporation and its four subsidiaries. But in 1999, the Insurance Regulatory and Development Authority (IRDA) Bill opened it up to private and foreign players, whose share in the insurance market has been rising.
As a part of overall financial sector reforms, the Government set up the Committee for Reforms in the Insurance Sector in 1992. In its report released in early 1994, it recommended the opening up of the sector to private sector participation. This was done in 2000. Since then there has been rapid growth and share of insurance in total financial savings of the economy has improved
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In general insurance 8 private companies have entered, 6 of which have foreign equity of 26 per cent. Among the private players in general insurance, Reliance and Cholamandalam does not have any foreign equity. The aggregate loss of the private life insurers amounted to Rs. 38633 lakhs in contrast to the Rs.9620 crores surplus (after tax) earned by the LIC. In general insurance, 4 out of the 8 private insurers suffered losses in 2002-03, with the Reliance, a company with no foreign equity, emerging as the most profitable player. In fact the 6 private players with foreign equity made an aggregate loss of Rs. 294lakhs. on the other hand the public sector insurers in general insurance made aggregate after tax profits of Rs. 62570 lakhs.

2. Credibility of foreign companies: The argument that foreign companies shall bring in more expertise and professionalism into the existing system is debatable after the recent incidents of the global financial crisis where firms like AIG, Lehman Brothers and Goldman Sachs collapsed. Earlier too, The Prudential Financial Services (ICICI’s partner in India) faced an enquiry by the securities and insurance regulators in the U.S. based upon allegations of having falsified documents and forged signatures and asking their clients to sign blank forms. This was after it made a payment of $2.6 billion to settle a class-action lawsuit attacking wrong insurance sales practices in 1997 and a $ 65 million dollar fine from state insurance