The government appears to be gearing up for second-generation reforms in the insurance sector.
When he resumed charge of the finance ministry, P Chidamabaram held a slew of meetings with the insurance regulator and captains of the industry in October 2012. Also, at a meeting in Singapore recently, the finance minister told the global community that the government was committed to seeking parliamentary approval for increasing the FDI limit in the insurance and pension sectors to 49% from the current ceiling of 26%.
The reforms introduced in 1999 were focussed more on opening up of the sector, enabling private players to enter and for attracting FDI to support this highly capital-intensive industry. The new regulations served the industry well and, over a period of time, the country witnessed entry of as many as 44 insurance entities. The contribution of the sector to the GDP increased to a record 5.1% in 2009-10, up from 2.9% in 1999. In the life sector, the number of intermediaries rose to a high of 2.9 million. As a result, the sector experienced a boom similar to the telecom sector during the best period of the economic reforms.
The industry reclaimed its role in the economy as an important component of development strategies. During 2010-11, however, the trend started weakening after almost a decade of fabulous growth in market penetration, distribution reach and product innovation.
The last two years were quite frustrating and the possibility of a revival seemed remote till the finance minister made the policy of the government explicit by announcing the 12-point programme for the life insurance sector and governments views on the issues plaguing the non-life and health business in the backdrop of the limitations faced by the insurers due to regulatory pressures.
The spate of regulatory guidelines, aimed at protecting policyholders interest and curbing wasteful expenditure, did bring with them a trail of misery, putting many companies completely out of track. Such steps were motivated by the need to curb mis-selling, but coinciding with the global economic slowdown, the regulatory interventions drew curtains on the first phase of reforms.
The constraints faced by the insurers and their pain were noted by the finance minister during his interactions with the CEOs.
The 12-point programme for life insurers tries to address issues in the domain of taxation, product approval, revamping of the distribution channel, etc. For the non-life sector, the government has hinted at the need to bring more transparency