Page 37 - Insurance Times March 2021

Table 1: Estimated Additional Equity Capital Flows to the Indian Insurance Sector
due to FDI Limit Hike to 74%

Equity Capital (Rs. crore)
Private Insurers FY19 Additional Capital Flows
Scenario II Scenario I
Life 27,516 40,760 10,596
Non-Life 9,570 15,480 4,240
Specialised Health Insurer 3,473 4,845 1,415
Total Additional Equity Capital 32,709 61,085 ($8.5 bn*) 16,251 ($2.3 bn*)

Source: IRDAI&Author's Computation; * assuming $1= `72

In our view, Government may favour the second scenario, insurers to offer products that are capital-guzzling but work
i.e., to issue fresh shares for extra foreign investments, in the customer's interest without taking a toll on their
rather than sale of stakes by the domestic promoters. In this bottom lines. It will also give domestic players access to
scenario, we estimated that the insurance companies may state-of-the-art technology to upgrade their distribution
receive around Rs. 61,085 crore ($8.5 billion) of additional channels towards a deeper product expertise and better
foreign investment due to increase in FDI limit over a period. underwriting skills. Additionally, it also opens up doors for
Further, it is estimated that Rs. 5,000-6,000 crore of fresh 7-General insurers, namely Acko, DHFL, Edelweiss, Go Digit,
investment in the sector in the next 1-2 years and $10,000- ICICI Lombard, Kotak Mahindra and Reliance, 2-health
$12,000 crore in the next 5-years and around Rs 60,000 in insurers, namely Reliance and Religare and 3-life insurers,
the next 15-years (calculated based on the assumption that namely Exide life, Kotak Mahindra, & Sahara Life, to sell
Indian promoter not divest capital from the JVs). stakes to overseas companies, which owns 100% by the
Indian promoters.
However, if Government would allow to the domestic
promoters to divest their stake (first scenario) in the It will also incentivise insurance intermediaries such as
insurance companies, it is estimated that a maximum of Rs. brokers and web aggregators through higher commissions.
16,250 crore additional investments may flow to the The increased capital inflow is also likely to give a fillip to
industry, through foreign investments. In the first scenario, relatively new private life insurance companies that have
the objective of FDI limit hike may not achieved, as the seen a decline in new business premium over last two years.
capital base will remain same and the insurers are not able
to expand their footprint to achieve the national agenda of The insurance industry not only protects human life but is
financial inclusion. also a key resource for raising funds for the long-term
projects in the country like infrastructure etc. Recently,
However, as per the latest available data (Mar, 2019), the Government has estimated that India would need to spend
average FDI investments in the 23 private life insurer is only $4.51trillion oninfrastructure by 2030 to realise the vision
35.5%, 30% for 21 non-life private insurers and 31.7% for of a $5 trillion economyby 2025, and to continue on an
the 7-specialised health insurance. However, the question escalated trajectory until 2030. Increasing FDI in insurance
is that whether foreign investors are really interested in is one way of meeting the funding gap.
Indian insurance sector? If yes, thenwhy the FDI used limit
is still only at 33.8% in private insurers? The budget moves may help the banking fraternity in two
ways; firstly, the big banks like SBI, ICICI Bank and HDFC
Benefits to the Stakeholders Bank may reap higher revenues (non-interest income) due
Insurers need capital to maintain a healthy base, offer a to their wide distribution network, as international
wider bouquet of products, and protect consumer interests companies may pay a premium to exploit their franchise.
against insolvency. Increased capital inflow will enable Secondly, if the first scenario of disinvestment (refer section

The Insurance Times, March 2021 37