"Private threat overplayed" - KPMG insurance report

10 November 1999

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.