Insurance Sector in India

Being the monopoly, the premium rates charged by LIC was among the highest in the world,and its customer service was pathetic. With a huge workforce in the clerical category, LIC ran the risk of high fixed cost and outdated technology which decides the productivity in the competitive scenario. Its a common knowledge and fact that 80% of LIC's business is procured by 20% of its ill-trained agent force. The Liberalisation of FDI, after 1991, favoured the foreign player, with the domestic partner through brokers, Internet, banking distribution system, etc. Although foreign players keep their operation in the big cities the real market lies in rural India, which accounted for the lion's share of LIC's business.

Role of IRDA
Until recently, India was one of the few countries of the world to remain insolated from the foreign direct investment in insurance sector. However, things have changed with the Malhotra committee recommendations and passage of Insurance Regulatory Development Act (IRDA) through Indian Parliament in late 1999.

IRDA prohibits 100% foreign equity in insurance. It requires the Indian promoter to invest either wholly in an insurance venture or team up with a foreign insurer, with a cap of 26%, now changed up to 49%, of equity for a foreign partner. The Indian promoter is permitted to divest only after 10 years to the Indian public, through a public offering of shares, at which time the equity structure will provide for equal participation between the Indian and foreign partner with a share of 26%, now changed up to 49%, each in the share capital. The opearting margin of 26%, now changed up to 49%, cap for the foreign insurer is to ensure that financial interest vests with the Indian promoter, permitting the foreign co-promoter a definite say in direction and management in political resistance.

Comparision with US Model
The economic reform process in India is 'irreversible' and is producing an efficient financial system in the model of US. From a socio-economic development point of view, the huge amount of funds will be at the disposal on the avenues like infrastructure, housing, drinking water, Irrigation, agriculture, electricity and primary education. The growth of the debt market,nothing but loans, will also get a boost as the funds from insurance companies start flowing into the kitty of the corporate sector. Not only that, the Equity market indeed will have a visible growth.Take the example of ICICI Prudential (ICICI- India Pridential-UK) . The money invested by a customer in deed being invested on equity or mutual funds resulting in the causation of increased liquidity.

Conclusion
There is a noteble change in the insurace industry since 1991. The raise in income levels of a mid-aged Indian has paved the digresion on investments and the insurance seems to be the "no-harm" deal. The foregin players has influxed the prima facie viz wider reach, technical advancements and greater customer focus in the retail market, consequently this makes the common man to opt them. Besides the retail sector the wholesale investments from the corporates will continue to grow in the near future. All this lies on the continual improvement in the economy. Hoping that, its high time to invest for our growth and nation indeed .