Implications of Fdi in Insurance Sector in India

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Implications of FDI in Insurance
To study the impact of FDI in insurance we first look at the how the Indian insurance sector has evolved over the years. Indian insurance sector has experienced different phases from being an open competitive market to being nationalized and back to deregulation. The Indian insurance story began in India in the year 1818 with the establishment of the Oriental Life Insurance Company in Kolkata. In the year 1912 the Indian Life Insurance Companies Act came into existence and laid out policies and procedures to control insurance business in country. It was later amended in 1938 to protect the public. The major change came in 1956 when the central government 245 private insurers and formed the Life Insurance
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Why Indian Insurance sector is attractive to Foreign Direct Investors?
Every industry has a unique market structure and it is considered that the relationship between openness to foreign investment and market structure is complex. Caves, R E (1996) states that there are empirical evidences which show the positive relationship between the extent of foreign investment and the degree of market concentration. It could be said that foreign investment is being attracted by industries with high concentration and high profitability. The short-run effect of foreign entry is to increase the number of firms and reduce concentration. After the reforms of 1999 FDI was allowed and the bar was set at 26% which did not really attract FDI as most big MNCs look for more decision making power. On the contrary, the FDI limit in the insurance sector is higher not only in other BRIC nations but also in other Asian countries such as Japan, Korea, Indonesia and Malaysia, in comparison to India’s 26%, which was a further disincentive for foreign investors to invest in India. In spite of that, India has an immense and almost untapped potential market for insurers, and is a highly attractive investment destination for foreign investors. The rise of the educated middle class promises sustaining growth opportunities for the industry to start with. Further, the presence of IRDA as a competent regulatory body promotes the interest of the insurers. Beyond this lies the immense potential at the bottom

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