Insurance Bill will positively impact the nearly 800 million uninsured Indians as well as help consumers with easy access to and affordable insurance
The Insurance Laws (Amendment) Bill, 2015 is the National Democratic Alliance (NDA) government’s first significant piece of economic legislation. It is a reformist legislation that will positively impact insurance consumers of our country, in particular, and the economy in general.
Bill is Pro-consumer and Pro-investment:
At the heart of this legislation, and the increase in foreign direct investment (FDI) limit in insurance, is the Indian citizen and an insurance consumer. India remains an underinsured country, under pensioned and underfunded on issues of social security. While averages and statistics that are trotted out usually may paint one picture, the reality is that at the bottom of our economic pyramid, large numbers of citizens are underinsured.
Insurance penetration in India is at 3.9% is below the world average of 6.3%, as per the figures in 2013 and is a very low 17th out of 62 nations. Compare this with, South Africa (15.4%) followed by South Korea (11.9%); the UK (11.5%); Japan (11.1%) and remember these are penetration adjusted for GDP!
Over 800 millions of Indians are uninsured lives. Many more in health, livelihoods and assets remain uncovered by insurance. This low insurance density needs to be urgently addressed and this can be only be done rapidly by introducing more insurance companies and more investment into the sector. More players mean more investment and also more competition. More competition means lower prices for consumers and increased affordability. Competition, and more competition through many companies, is the only sustainable way for Indian consumers to get easy access to and affordable insurance.
Why FDI and no funding from domestic sources is one of the questions posed by opponents of the Bill. The question can be posed to all sectors that attract FDI today – telecom, infrastructure, services, airlines, and homes – Why FDI at all?
It is that while our economy is a growth economy, just like any other economy, we have finite resources and these need to be prioritised. We need our domestic resources for areas where private capital will not go like social sector, poverty programs of the government and rural infrastructure. If we can raise additional resources from external sources, it is good economics and politics to do so. Even a country like China economic playbook has FDI at its core.
On the issue of opposition to FDI, it must be pointed out that foreign equity is in insurance and every other sector through the foreign institutional investment (FII) route anyway. FDI is actually better for the country’s economy, since its more long term and creates tangible assets as opposed to FII, which are speculative and short term in nature. It is a flawed and contradictory position and inconsistent with demands of todays’ consumers that want choice and competition as their right.
The dynamics of a well-insured society are transformational. High insurance densities have huge impacts on societal wellbeing, health, family standards of living one end of the spectrum of benefits. It also creates an economy of high savings rates, improved long-term capital availability to the financial sector, which in turn makes long-term infrastructure financing easier. So, catalysing the insurance sector and regulating it well is good for consumer and the economy.
The Budget 2015 has introduced into our economic architecture some new structural propositions that directly influence the poor and needy citizens of India. The accident insurance, pensions and insurance are the first few steps in creating a social security framework. Every developed democracy has a social security net that ensures a targeted and sustainably funded model that backstops the poor and needy or temporarily out of work. This legislation also further powers this architecture because it makes insurance more affordable by creating competition.
There are some elements in the Bill that could have been avoided or improved. The Bill talks about Indian control. It could be misunderstood to imply that it creates two classes of investors, giving a certain group of Indian investors’ rights disproportionate to their holdings and perpetuates the 80’s bhumiputra type differentiation. This is not contemporary thinking. For a nation that needs to attracts billions of dollars of investment into Make in India, Digital India, Defence, Infrastructure and services – creating economic differentiation between foreign and Indian investors is not a good idea and only perpetuates a culture of rent seeking amongst some Indian businessmen and corporate groups that have done it for several years
In addition, the Bill misses a big opportunity to create a reinsurance hub and thousands of jobs associated within India. With Dubai and Singapore fast emerging as reinsurance hubs that are moving markets away from traditional Europe and North America, it seems that we have not thought this through. For a reinsurance hub in India, the FDI limits will have to be higher.
The government and Finance Minister must commit that they will work to making insurance public sector units (PSUs) even more competitive and strong by redesigning how they are managed and run. PSUs must be investment assets for the government, but not by preserving monopolies but by transforming them to market leaders and world beaters, even as the insurance market grows. Countries like Singapore has shown how government linked companies can perform well and that vision must be unveiled here as well.
The Insurance Laws (Amendment) Bill is pro-competition and pro-consumer. It is pro-investment and pro-economy, is a reformist legislation that will catalyse the insurance sector and the economy.
(Rajeev Chandrasekhar, an independent member of the Rajya Sabha, is also a member of the Standing Committee on Finance and a technology entrepreneur)