Insurers' breakeven period expected to shorten with higher FDI cap

The hike in the foreign direct investment (FDI) limit from 49% to 74% in the insurance sector is expected to shorten the breakeven period for insurers from current eight years to five, says a working paper by the Indian Institute of Management Indore.

The higher cap will provide the Indian insurance sector much-needed impetus to develop physical and digital infrastructure, recruit and train skilled manpower, design innovative products, add new channels and develop new business models to reach the low-income segment of the population, reported Business Standard citing the working paper.

Titled “FDI in Insurance: Meaning and Impact”, the paper suggests a hike in the FDI ceiling will give privately owned insurers a level playing field. Currently, operating and commission expenses of private insurers are believed to be thrice those of their public counterparts.

The paper says that insurers need to learn how to manage India's growing market. Here, both funds and experience can be leveraged through an international joint venture partner who already has experience in a mature market specially in technology platforms and developing a product mix.

More FDI will also increase specialised job creation mainly in channels, agents, product development and services.

Source: Asia Insurance Review