At last, in July 1998, definitive news emerged revealing that the Indian government was to allow foreigners to enter the country's insurance markets through limited equity participation in joint ventures with local partners. It has taken more than two years for the first licences to be issued, but the patient are now being rewarded. The six insurers licensed or provisionally approved in the first wave of authorisations hope to begin writing business in India as early as this month.
The success or failure of the ventures will depend on a multitude of factors, including the aggressiveness of the incumbent insurers - subsidiaries of the former monopoly - and the level of faith that average middle-class Indians place in private carriers. But most important will be foreign and local investors' selection of a joint venture partner. Companies that have made a wise decision are almost certain to reap benefits, eventually, from their investments in India.
Foreigners have no alternative, but fortunately most Indian companies prefer the joint venture route. To date, only one of the six successful license applicants, Reliance General Insurance Co, is owned by a local company operating without a foreign partner. Reliance Capital, part of Reliance Industries, one of India's largest conglomerates, is the lead investor. The company has and will continue to rely on consultants, including KPMG and Watson Wyatt, to provide the requisite industry knowledge. Its licence has been granted, although it is seeking additional authorisations for life and health insurers. Also licensed are HDFC Standard Life Insurance Co, in which the Scottish international life company Standard Life Assurance has partnered with Housing Development Finance Corp, India's largest home loan company, and Royal Sundaram Alliance Insurance Co, a joint venture between Royal & SunAlliance and the Indian conglomerate TVS Group, its Sundaram Finance subsidiary, and group companies Lakshmi General Finance and Indian Motor Parts & Accessories.
Three additional companies have been granted “in principle clearance for registration subject to the satisfaction of certain conditions precedents [sic],” according to the Insurance Regulatory and Development Agency (IRDA), India's regulator. Max New York Life Insurance Co, a joint venture between New York Life and Indian conglomerate Max India, was the first life insurance joint venture to register under the India's Companies Act 1956. IFFCO Tokio General Insurance Co weds Tokio Marine with the Indian Farmers' Fertiliser Co-operative. The two companies will be licensed once their capital is in place, the IRDA told
The third company approved in principle is ICICI Prudential Life Insurance Co, a partnership between the UK's Prudential and the Industrial Credit and Investment Corp of India. At the time of writing, clearance from the banking regulator was holding up its licence, although it is expected to be issued in the near future. In addition, ICICI is seeking a licence for non-life business through a joint venture with a Canadian subsidiary of Fairfax Financial, Lombard General Insurance Co of Canada.
More licences are expected soon. “Remaining licences applications are being processed in the order they were received,” said IRDA spokesman Mr Ansari. “It is difficult to say when they will be issued, but we hope to stick to our time schedule.” He said another six applications were pending, all of which were filed in late September or October, and that the IRDA was ready to accept more. “The window is open, and it will remain open.” In addition, another dozen or so joint ventures have been announced or established, and as many as 20 international insurers are still searching for a joint venture partner.
They would do well to take their time. Matched insurers say finding the right partner is essential. “It is more difficult than picking a wife,” says Gary Benanav, chairman and chief executive of New York Life International Inc. As with marriage, compatibility is of paramount importance, but he admits: “It is hard to define exactly what you are looking for, but you know it when you see it.” He says the key was that Max India shares the same values as New York Life. “We felt comfortable, we thought we could work with them, and we saw they would not in any way damage our reputation.”
Max has several joint ventures with westerners, and stood up to a thorough checking of references by New York Life. “Other partners said they are extremely co-operative, and that they have tried to do things in a consensus way. As a minority partner it was important for us to find somebody who would treat us as an equal.” In addition, Mr Benanav says, Max had the advantage of being able to afford to fund their share. “It is not every company in India that could do it.”
Cameron Mills, group actuary at Standard Life Assurance, gave some similar reasons for his company's partnership with HDFC. “First the corporate cultural values of HDFC and Standard Life are very similar,” he said. “When I first went to India and talked with them about the joint venture, I found the company's missions and values were very similar to our own. Issues for Standard Life, such as being customer driven, were the same issues for HDFC. There was never any debate.” The second suitability factor, he said, was the mutual respect the two chief executives have for one another. “It flows through to the rest of the organisation. We get on very well together. Of course we have disagreements, but there is never any animosity or mistrust.”
Mr Mills went on to highlight a key strategy for making a joint venture work, in India or anywhere. “There is an Indian way of doing things and a British way, and we trust our Indians implicitly to help us through the Indian way. That makes our relationship work,” he said. Mr Benanav said knowing your strengths was vital. “We really understand the life insurance business in its various facets, and Max brings to the party a very deep knowledge of the Indian market. They know what works and doesn't.” He said Max had a “very progressive, western way of thinking” about corporate management, “but not so much so that it doesn't work in India. They are very good at helping us adapt what we do to work in Indian market.”
Deepak Satwalekar, Managing Director of HDFC Standard Life, and of its parent company, HDFC, expressed similar sentiments. “On my first trip to Edinburgh I met about 14 people - and the degree of comfort I felt with all of them, their willingness to share experiences and information, was similar to our own,” he told Global Reinsurance. HDFC, with its national retail financial network granting a potential distribution presence in 2,400 Indian towns and cities, was a sought-after partner. “In all modesty, everyone who came to India beat a path to our door,” Mr Satwalekar said. “We have a reputation for fair play and integrity, and we have a large retail customer base, as one of few specialised retail financial businesses in the country. But it was Standard Life we felt most comfortable with.” He says the regulator has done a very thorough job of vetting applications, and believes the authorities don't want to see joint venture partners chasing a quick rupee. “The industry would receive a serious setback if people with a short-term perspective entered the market. The regulators were influenced by what happened when the telecoms sector opened up: Indian partners came in for the short term and almost immediately traded their licences to the highest bidder.” Thus, he said, the process has been made one of registration. There is to be no rationing of licences.
In the short time that the six companies have been licensed, the existing joint ventures have proved robust. However, several have failed - notably that between Allstate of the US and Dabur India Ltd. Allstate withdrew just as the joint venture's life insurance licence was filed and being processed. “We decided that our capital and resources should be allocated to other initiatives,” a spokesperson for Allstate said. “I guess, while we still believe the Indian market holds tremendous potential, we are simply unable to devote the necessary effort and resources to it.”
Allstate is not the only company to make a last minute reversal based on new corporate priorities rather than any fault of their joint venture partner. Another company that recently pulled out of a well-established joint venture, this time on the non-life side, is CGNU. “We don't want to be in markets where we are not in a position among the top five, and we would struggle to achieve that in the Indian non-life market,” admitted Cees Schrauwers, managing director, international, at CGNU. “The decision was also partly because of the rules. The local investor will have to divest part or all of its holdings in three to ten years, hardly a period to build up a track record. That is a technical problem, and it means we could end up with an unknown partner in the joint venture, which is not really attractive.”
In addition, the maximum foreign shareholding of 26% “is not very attractive,” he said, adding it means such investors enjoy only 26% of the reward, despite their investment of intellectual capital. “I believe [the legislators] underestimated the amount of intellectual capital and senior management time required for these ventures. It is a fundamental handicap.” The one thing that Mr Schrauwers highlighted as not contributing to CGNU's failed aspirations for the Indian non-life market was its joint venture partner. “We had a strong relationship with the Wadia family,” he said, referring to the owners of the partner company, Mumbai Dyeing. “It was the business proposition that failed.” Ironically, that same business proposition is sufficient for CGNU to pursue its life insurance joint venture with newspaper the Hindustan Times. “We are keen to develop our life insurance and asset management capability in India,” he said. “It is a market with a great level of attractiveness.”
Other partings-of-ways include Allianz's split with Alpic Finance; Liberty Mutual's collapsing of a health insurance deal with unlucky Dabur India Ltd; Aegon's negotiation break with State Bank of India; and Manulife Financial's complete withdrawal from the country, leaving Unit Trust of India, the country's largest mutual fund, without a partner. Such antics on the part of foreign investors are not appreciated by India's insurance venturers. “The withdrawals will make people think it through more carefully, and not jump into bed with anybody who comes along, even if they have a big name,” said HDFC's Mr Satwalekar, pointing out that Allstate is a big name. “It is important to understand where India figures to [potential partners]. If it contributes to the third place of decimals to the parent company, and they plan to contribute a similar amount of resources, you must rethink.”
Adrian Leonard is a freelance insurance journalist and a regular contributor to Global Reinsurance.