Max India's foray into insurance

As part of its plans to enter the areas of life insurance, health care and information technology, Max India announced its tie-up with the US-based $20-billion New York Life International, Inc. on 3 November. The joint venture will offer life insurance services in India. The tie-up comes close on the heels of Max India's strategic alliance with Harvard Medical International, USA, which will enable it to enter the health care delivery business.

Max India is already in the businesses of bulk pharma, speciality products, electronic components, and telecom services. New York Life was the leading provider of new life insurance policies in the US in 1998 and is a Fortune 100 company. It ranks ninth among global life insurance companies.

The two companies have signed a joint venture agreement and will apply for a licence to the Insurance Regulatory and Development Authority as soon as the insurance deregulation process begins. While that may take some months yet, the joint venture company, Max New York Life, will start work on designing the products it wants to offer in India. It wants to be absolutely ready to be off and running the moment its licence comes through.

As specified in the draft IRDA Bill, 1999, foreign companies will not be allowed to subscribe to more than 26 per cent of the equity of insurance companies. Hence Max India currently proposes to have a 74 per cent equity stake in the new JV, and New York Life, 26 per cent on an initial capital of Rs 100 crore.

Analjit Singh, vice chairman of Max India, said at the JV announcement press conference held in Mumbai, "This ventureanaljitsingh.jpg (4521 bytes) will enable us to offer customer-focused and highly differentiated products and will be a key step in Max India's portfolio of new businesses. It will extend Max India's presence in knowledge-based businesses." He added that investment in the company would go up over the next five years.

Gary G. Benanav, chairman and CEO of New York Life garybenanav.jpg (3174 bytes)International, said that the Max New York Life would start with life insurance and later consider the possibility of entering the asset management and pension businesses. He added that the joint venture may seek participation of international financial institutions, if it is given permission to do so.

"We are delighted at the opportunity of bringing our world-renowned expertise in providing insurance services to citizens of India," Mr Benavav said, adding that India enjoys top priority in his company's Asia business plans. New York Life has operations in China (and Hong Kong), Indonesia, South Korea, Taiwan.

Rajiv Ahuja, deputy general manager, Max India, says the new company will offer differentiated products in insurance in contrast with LIC, whose products are largely undifferentiated. "The payback policy is the only variation that LIC offers. Discerning buyers will look for options, which is what we will provide. There are certain needs out there that can be met by focused products and marketing. Currently, the Indian insurance market is driven by tax advantages rather than savings." He expects this will change once the insurance sector gets deregulated and private players are allowed to enter with their offerings.

Once the Indian consumer has more choice, he expects the insurance market will grow exponentially, since the current penetration is still very low -- just 1.3 per cent. He points out how the Taiwanese insurancemarket doubled its growth rate and penetration after it was opened up. He also admits that LIC is very strong, "with a large field network", and cannot be taken lightly. So the new entrants in the sector will have to set up their networks, and plan their product models and marketing strategy before they can even think of challenging LIC.