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Photo: iStockphoto
Photo: iStockphoto

Opinion | Spread the risk

The cap on foreign investment in insurance companies stays at 49%, though

On Wednesday, India notified a decision to allow up to 100% foreign direct investment in insurance intermediaries. With the gates now fully open, insurance brokers, reinsurers, surveyors and loss assessors, among other service providers from abroad can set up shop here. Indian operators in these fields would also be able to secure equity funding from overseas. Further, competition and expertise levels should rise, resulting in better and cheaper services for customers.

The cap on foreign investment in insurance companies stays at 49%, though. One argument for this is that foreign control of local insurers would expose people’s policies to the risk of overseas principals folding up. It’s easier to ensure that insurers honour their long-term commitments if they are locally-owned. With intermediaries, such concerns do not arise, as their client dealings are usually short-term. The downside of allowing foreign insurers only partial entry is that less money is invested in the local market’s expansion. Also, state-run insurers get to dominate the business. This may suit the government. But if the broad idea is to spread risk, it should apply to the entire sector, too.

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