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In
the year 2001, when the Indian government opened the life
insur-ance sector for private players, foreign players showed
a lot of enthusiasm to enter this largely untapped market.
However, the government's inability to hike FDI cap has poured
water on their dreams after five years. As the losses are
piling up since the past five years, coupled with not being
able to expand business in want of fresh capital recently
two private life insurance players have gone out of business.
In the recent past, AMP Sanmar has sold out their insurance
business at very low valuation of Rs. 100 cr to Reliance,
which is far below their paid-up equity capital. In another
case, GMR and ING Vysya bank have desperately sold their stakes,
which has generated almost no returns to them. These fiascos
have reflected the market realities in doing the insurance
business, specifically in India. In other words, after commencing
their operations five years back, the industry is facing an
acute capital shortage due to the government's reluctance
to hike the FDI limit to 49%.
After
the liberalization of the insurance sector, it has witnessed
a strong growth in terms of policies and premium collected.
The penetration of insurance has grown from 1.8% to 2.3% in
the GDP, while the per capita premium has more than doubled
in that period.
Almost
all 13 life insurance players have been incurring substantial
losses since the past five years. According to some estimates,
private insurers made a combined loss of Rs. 1,000 cr in 2003-04.
These losses might reach alarming levels in the next few years.
Perhaps, losses are not abnormal in the life insurance industry.
Having a long gestation period of 10-15 years, the players
have to bear losses in the early years in order to reap the
long-term benefits. Stuart Purdy, Managing Director, Aviva
life insurance India, says, "Insurance industry needs
capital to grow and reach out to the length and breadth of
the country, which requires significant investment." |
