Continuity of reforms in non-life insurance

G V Rao
29 June 2004

With the change of government at the centre, there is increased speculation on the future of reforms in the insurance sector, particularly in the non-life segment. There are demands for dismantling the prevalent tariff structure, notably in fire, engineering and motor businesses and for raising the paid-up capital of private sector insurers by enhancing the participation level of foreign equity from 26 per cent to 49 per cent or more.

No reinsurer has set up shop in India till now though norms for their licensing are in place for a while. There is a talk in the air of limited disinvestment in the shareholding of the public sector units to get a listing in the stock exchanges for monitoring their managerial performance.

Though it was the government led by the Congress party that initiated reforms with the appointment of the Malhotra Committee, the NDA government, demonstrating a national consensus on reforms in the insurance sector, handled the subsequent liberalisation in the sector.

The issues raised above are of structural importance based on the experience gained since then. Since non-life insurance touches the lives of a relatively limited portion of the population the debate on the issues has been rather quiet and low key.

The insurance penetration i.e. gross premiums collected to the GDP of the country is less than 0.58 per cent — very low indeed, lower than that in Kenya, Indonesia and China. A true measure of the success of the reforms lies in increasing the level of penetration so that more and more people are brought into the insurance net. The level of penetration has gone up from 0.49 per cent four years ago to 0.58 per cent in 2002-03 at a slow pace.