After hanging in balance for over six years, a hike in foreign investment cap for the insurance sector has become a reality, although the government had to take ordinance route, as a Bill in this regard could not go through Parliament.
To show its commitment to reforms in this key sector, eyed keenly by foreign investors, government promulgated the ordinance last week itself. The sector eagerly looks forward to potential FDI inflows in 2015.
The move assumes significance because it has happened just a few weeks before US President Barack Obama's visit to India, given the sharp interest of the American investors in the Indian insurance sector.
Finance Minister Arun Jaitley has expressed hope that hiking of the foreign investment cap in the insurance sector to 49 per cent, which has been pending since 2008, will result in a capital inflow of $6-8 billion.
The capital-starved industry has been waiting for further liberalisation of the foreign investment limit for a long time. IRDA (Insurance Regulatory and Development Authority) chairman T S Vijayan says that the domestic insurance industry needs investments worth up to Rs 60,000 crore in next five years to increase penetration levels substantially from the current 3.9 per cent.
"Our calculation was that, in the next five years, to increase the penetration, Rs 50,000 crore to Rs 60,000 crore is required. This was our calculation some time ago. When the sector started, it (insurance penetration in the country) was less than 2 per cent."
"It has doubled to 3.9 per cent now. I will not say it will double again. But there will be substantial growth (with the investments in the next five years)," Mr Vijayan said.
According to PNB MetLife India CEO and MD Tarun Chugh, higher foreign investments and other reforms can re-energise the sector in 2015 with the infusion of capital. \
"We can look forward to a 5-10 per cent growth rate," he said.
"The investments will be done in product innovations and to increase market penetration which is currently pegged at 4 per cent of GDP," he added.
As far as general insurance sector is concerned, the industry faced significant claim pressure due to J&K floods and Hudhud cyclone in north coastal Andhra Pradesh, south Odisha.
According to some estimates, the industry would have taken a hit of Rs 5,000 crore due to these to calamities. This would have some negative impact on the bottom-line of general insurance companies.
This year the industry saw some major losses due to natural calamities like J&K Floods and the Hudhud Cyclone and the total losses accounted by the industry due to these calamities would be close to Rs 5,000 crore, said Bajaj Allianz General Insurance CEO Tapan Singhel.
"As an industry that pays out claims to the tune of Rs 50,000 to Rs 60,000 crore on a year on year basis, these incidences might not have a significant impact on the growth of the industry as a whole," Mr Singhel said.
"What is having an impact on the growth and bottomline of the industry is the current levels of pricing in the industry."
"The industry needs appropriate levels of pricing which needs to commensurate with the risk," he added.
The year gone by had been challenging due to natural calamities but 2015 looks promising.
"I believe that 2015 will be an eventful year for the insurance sector as a whole. The health insurance segment in particular, will continue its double digit growth as the new government has placed great emphasis on covering every citizen with some form of health insurance coverage," said Apollo Munich Health Insurance chief executive Antony Jacob.
With the government, the insurance regulator (IRDA) and the industry working in tandem, there will be an increased level of knowledge amongst the population and that should create greater acceptability of insurance, he added.
There are 52 insurance companies operating in India; of which 24 are in the life insurance business and 28 are in general insurance business. In addition, GIC is the sole national reinsurer.