Will India's public sector insurance companies get swept away by the invasion of private and foreign insurance players? J Rajagopal, managing director (consulting), KPMG India, does not think so. He believes, as does the KPMG team that has put together a report on the Indian insurance sector, that the threat of new players taking over the market has been overplayed.

The KPMG report, titled , was released in New Delhi on 9 November by Insurance Regulatory and Development Authority chairman N Rangachari. Mr. Rangachari said the government planned to bring out separate pieces of legislation to regulate insurance surveyors and actuaries, after the passage of the IRDA Bill. For an earlier report on this see .

According to Mr Rangachari, the mandated investments of all life and non-life companies after the passage of the Insurance Regulatory and Development Authority Bill would be 50 per cent of their investible funds, as is provided under section 27 of the Insurance Act. He said that at present, however, the subsidiaries of the General Insurance Corporation and the Life Insurance Corporation have mandated investments of 55 per cent and 75 per cent, respectively.

The Insurance Act 1938 provides that the minimum investment by insurance companies in Government securities and other approved securities would be 50 per cent, with the remaining being regulated by the regulator. The minimum limits were raised by the government from time to time in its dual role of a regulator under the controlled regime.

Giving an insight into the trends that could be expected in the insurance sector, Mr Rajgopal explained, "One of the major concerns in this area has been that private players, particularly foreign players, will grab a large market share. This hypothesis has been disproved in emerging markets worldwide. It has been found that, typically, foreign insurers take only a small share of an individual country's market."

The KPMG report gives examples of Taiwan, where foreign companies managed a share of 3 per cent seven years after the sector was liberalised, and Korea, where it was 1 per cent after 20 years.

The report is based on research conducted by KPMG in India and abroad and on insights gained through working with clients in different markets. It examines the key issues, and outlines possible trends, opportunities and challenges for the insurance sector in India once it opens up for private participation.

The KPMG report makes the following observations with regard to the insurance sector in India:

• The threat of new players taking over the market has been overplayed;
• Nationalised players will continue to hold strong market share positions, but there will be enough business for new entrants to be profitable;
• Opening up the sector will certainly mean new products, better packaging and improved customer service;
• A middle market approach tapping segments and niches that are currently underserved will prove profitable for new entrants;
• New companies often overestimate the need for insurance expertise, assuming that a joint venture is the most appropriate type of alliance, when in fact many forms are possible; and
• Both new and existing players must explore new distribution and marketing channels.

According to Mr Rajagopal, KPMG has a dedicated insurance practice in India since 1995. The professional advisory firm has been assisting state-owned insurance companies and many potential entrants.

Peter Akers, partner, insurance consulting practice, KPMG London, gave a presentation on the occasion that focussed on the impact of de-regulation worldwide, what can be expected in India and the options available to insurance companies in India. "Distribution power is key to competitive strength in the insurance sector," Mr Akers said. He went on to elaborate on issues in distribution, the most crucial aspect in insurance.

Click here to see KPMG report: Insurance: trends and issues