Business Economics & Services Team (BEST)
........And Finally Insurance Sector in India Hiking FDI Limit
If there is no slip between the cup and the lip, the government is going to hike the threshold limit for FDI participation in the insurance sector from the present level of 26 percent to 49 percent. For at least seven years, this proposal was in a limbo thanks to the political resistance exerted by the opposition parties, particularly the left parties. Even now some of the opposition parties are against it. The support the main opposition party-Congress-is likely to give for the passage of the bill, it is most likely it will be gone through in the Rajya Sabha, where the ruling alliance does not have sufficient numbers. Undeniably, it was during the rule of Congress led alliance the bill was mooted and it is their moral responsibility to back it as a responsible opposition group.
The net impact of the proposed bill will have to be objectively assessed. With the opening up of the insurance sector, there are now more than 25 private players in the field. Many of them of them are incurring loses ever since their inception. These beleaguered insurance companies will be able to shore up their liquidity by selling their stakes to foreign companies. It is expected that some FIIs will also take stake ensuring more liquidity to the industry to overcome the severe financial crunch being faced by them.
But that is only one side of the story. Capital infusion alone will not take the industry out of the red. Insurance penetration, in India is very low except for the motor vehicle insurance. Health and life insurance are laggards going by their penetration. Also, there are many , who drop out from the scheme midway for one reason or the other. Insurance companies should be encouraged to go out to the rural areas where there can be huge market for both life and health insurance.
Launching of attractive products at affordable price holds the key to permeating insurance culture across the country. Some of the unit linked products had ended in disaster shaving of huge savings of the people eroding their faith in the system. Some of these products were sold by the overzealous agents and advisers giving the policy holders undue hopes and expectations and hiding the real facts. Once bitten, they had become twice shy and abhorred the insurance route to social security.
Also, some of the insurance companies had embarked on huge administrative charges as high as 30-35 percent, which was kept in dark from the credulous public. They got to know these things only when the statements were sent. Whereas the internationally accepted benchmark of administrative charges vary between 1to 2 percent, Indian insurers took the insuring public for granted by overcharging to the extent of 35 percent or so.
It is important that the insurance companies should have a deep pocket to sustain their efforts since there is a stipulation of lock in period, wherein the insurance companies cannot channelize the premium for investing activities. This will mean that the business model that governs the life and health insurance should be structured in such a way that there should be liquidity for the insurance companies in a seamless manner to withstand the possibility bunching of sudden claims. Ideally, a consortium of banks and insurance companies can be a role model for ensuring sustained liquidity. That is the case with most of the insurance companies operating in India.
Health insurance is a hotbed of mistrust among the players such as insurance companies, TPAs and the hospitals. There are cases when the hospitals are overcharging the insurance companies leading to proliferation of disputes. While the hospitals claim the best treatment using state-of-the-art technology is costly, a permanent solution should be arrived at among the stakeholders to evolve standard treatment profile for specific diseases.
There are also certain unacceptable practices among the insurance companies to disallow the claims of the policy holders for one reason or the other, putting the customer into great difficult. There should be a standard practice to assess the claim and disburse it at the earliest.
