India must allow 100% overseas ownership if progress in the insurance sector is to be sustained, says Vikas Newatia.

The Indian non-life insurance market has slowly been liberalising since the start of the decade.

First, overseas companies were allowed to enter as part of joint ventures with local enterprises, but in a tightly regulated pricing structure. Then price controls were relaxed (except for third-party motor). At the start of this year, restrictions on wordings were lifted.

There is still some way to go. There are strict limits on overseas participation in joint ventures.

All insurers must cede 10% of their premiums to the national reinsurer, GIC Re, on every policy (subject to certain limits).

Nonetheless, the changes have shaken up the four state-owned insurers, which had previously enjoyed near-monopoly conditions. The market share of the state sector is down to about 60%.


Years of near-monopoly conditions have deprived the country of the insurance culture and skills to compete in a disciplined, technical manner. And the lifting of tariffs has been accompanied by a ‘growth at any cost’ mentality.

Much current underwriting is unsustainable in the long run, especially now that high investment returns are no longer achievable. The new entrants tend to cede around 50% of their premium income, leaving the market vulnerable to swings in sentiment and market conditions among reinsurers.

Furthermore, it is increasingly difficult for them to cherrypick the most profitable segments. As the private sector’s share increases, companies are increasingly forced to compete for less lucrative business.

One of the beneficial aspects of the growth of the private sector is that it has reintroduced previously neglected skills. Its experience in serving clients, introduced via the joint venture partners, is a massive bonus.

Most non-life actuaries in India are in their 60s or older, having trained before insurance was nationalised in the early 1970s. Many are no longer practising. The newcomers have provided a welcome fresh injection of actuarial and other expertise.

They could do a lot more, but foreign insurers are currently confined to a 26% share of any joint venture. This is curbing their enthusiasm, and for many it is a passive investment.

There have been plans to raise the limit to 49% for several years, but there is little sign of any movement. The long-term goal must be to allow 100% overseas ownership.

Vikas Newatia is managing director of non-life actuarial and business consultancy EMB India