Indian Government Opens The Gates Wider For Foreign Insurers

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The Indian government has increased the Foreign Direct Investment (FDI) cap on several sectors including insurance and telecom. [1] The FDI limit for the insurance sector has been increased from 26% to 49%, allowing non-Indian entities like MetLife (NYSE:MET) and Prudential Financial (NYSE:PRU) to hold up to 49% of equity/share capital in Indian insurance companies. Insurance companies with foreign capital in the country include Tata AIA Life, DLF Pramerica Life Insurance (a joint venture between Prudential Financial and DLF) and ICICI Prudential Life Insurance (a joint venture between the British insurer, Prudential plc and ICICI).

The bill increasing the FDI cap in insurance still requires approval from the Rajya Sabha or the Upper House in the country.

See our full analysis of MetLife

A Growing Market

India is the tenth biggest insurance market in the world accounting for more than 2% of the world’s premiums and 6% of the premiums originating in Asia. [2] It is also one of the fastest growing markets, new business premium (NBP) volume in the country grew by 28% from 2000 to 2011 while gross written premiums increased by 25% during the same period. [3] The life premium volume from India is around $60 billion, a little over 3% of its GDP.

Despite the recent growth, the country’s 1.2 billion population is still underinsured. Based on the census conducted in 2001, the IRDA reported that there are around 600 million insurable people in the country. However, less than 50% of this insurable population is covered by a life insurance plan. [4] The level of protection, measured by the ratio between the assured sum and the GDP, is around 55% – much less than that in developed markets like the U.S. and the U.K. which have protection ratios around 150% to 250%, respectively. [3]

MetLife’s Interest

The Indian market fits perfectly into MetLife’s international expansion plan. The company’s premiums from international operations have grown exponentially, from $2.88 billion in 2008 to $13.29 billion in 2012 with over 60% of the premiums coming from Asia.

In India, MetLife has a 10-year exclusive distribution agreement with Punjab National Bank (PNB), which has a 30% stake in PNB Metlife India Life Insurance. [5] PNB is the largest nationalized bank in India with over 5,000 branches and 60 million customers. The agreement with the bank will allow MetLife to expand aggressively in the Indian market.

The Indian market is currently dominated by the government run Life Insurance Corporation (LIC) which has a market share of over 70%. Private sector companies have just over 40 million policies in force. [6] In a similarly regulated market, China, MetLife has managed to gain market share of 10% of the foreign-owned life insurance market. ((Foreign Insurance Companies In China, PWC, December 2012))

We expect the Indian insurance market to grow to $120 billion by the end of the decade. If the market share of private insurance companies increases from 30% to 35% and MetLife is able to attract even 3% of this, it can earn around $1.2 billion from the country. Please read our article: A Look At The Indian Life Insurance Market, for more on the Indian market.

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Notes:
  1. Govt allows 100% FDI in telecom, hikes insurance cap to 49%, Times of India, July 16 []
  2. Sigma Report, Swiss Re []
  3. India Life Insurance 2.0, McKinsey&Company [] []
  4. INDIAN LIFE INSURANCE INDUSTRY, Researchers World []
  5. MetLife Enjoys Year-End Success on International Business Growth []
  6. IRDA []
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