Mumbai: With the hopes raised that the government will increase the cap for foreign direct investment in the insurance industry to 49 per cent from the present 26 per cent, the public sector companies could face tougher competition from the private sector.
Moody’s Icra outlook for the Indian general insurance industry observes that the capacities of the domestic partners would no longer constrain capital levels for joint ventures.
Today, despite all the constraints, the market share of the private sector is catching up and the two will likely to converge over the medium term. The market share of the public sector has come down to around 65 per cent in 2006-07 while that of the private sector has gone up to around 35 per cent in the same period from a little less than 30 per cent in the previous year.
The study says that in the past, private insurers had aggressively targeted the more profitable (and tariffed) corporate fire and engineering businesses by combining with discounted offers on de-tariffed products like personal accident and health and marine cargo and hulls.
The report said that the inherent operational flexibility of the private players, such as aggressive pricing, has allowed them to capture a greater share of large corporate accounts.
But such strong penetration of large corporate clients makes future growth in this segment more difficult. Mr Rahul Agarwal, CEO and managing director, Optima Insurance, agrees that competition for the public sector will go up if the joint venture cap is increased.
He said a lot of foreign companies will come and the Indian companies’ joint venture partners will pump in more money as they are cash starved. The JV partners feel that with just 26 per cent, they are only giving intellectual property. They would bring in more technology if the cap is raised. However, Mr Agarwal said, "market share should not be seen in isolation. Everyone grows. It happened in the case of Maruti and LIC."
The Moody’s report says further that the public entities lack the operational flexibility enjoyed by the private players. Their limited capacity to innovate has impacted their ability to tailor and aggressively price products for large corporations.
Moody’s Icra outlook for the Indian general insurance industry observes that the capacities of the domestic partners would no longer constrain capital levels for joint ventures.
Today, despite all the constraints, the market share of the private sector is catching up and the two will likely to converge over the medium term. The market share of the public sector has come down to around 65 per cent in 2006-07 while that of the private sector has gone up to around 35 per cent in the same period from a little less than 30 per cent in the previous year.
The study says that in the past, private insurers had aggressively targeted the more profitable (and tariffed) corporate fire and engineering businesses by combining with discounted offers on de-tariffed products like personal accident and health and marine cargo and hulls.
The report said that the inherent operational flexibility of the private players, such as aggressive pricing, has allowed them to capture a greater share of large corporate accounts.
But such strong penetration of large corporate clients makes future growth in this segment more difficult. Mr Rahul Agarwal, CEO and managing director, Optima Insurance, agrees that competition for the public sector will go up if the joint venture cap is increased.
He said a lot of foreign companies will come and the Indian companies’ joint venture partners will pump in more money as they are cash starved. The JV partners feel that with just 26 per cent, they are only giving intellectual property. They would bring in more technology if the cap is raised. However, Mr Agarwal said, "market share should not be seen in isolation. Everyone grows. It happened in the case of Maruti and LIC."
The Moody’s report says further that the public entities lack the operational flexibility enjoyed by the private players. Their limited capacity to innovate has impacted their ability to tailor and aggressively price products for large corporations.
Source: Asian Age, Deccan Chronicle
1 comment:
Indian Life Insurance Industry is expected to grow @30-40% annualy. With the increase in Foriegn Capital we can expect more companies, innovative products & at growth of Insurance Market. The untapped area such as Health, Annuity & Rural will get attention. Insurance penetration will increase ..
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