FDI in insurance may shorten break-even period by 3 years: IIM Indore study

The hike in Foreign Direct Investment limit from 49% to 74% in the insurance sector is set to shorten the break-even period for the industry in India from current eight years to five, finds a working paper by the Indian Institute of Management Indore.

Titled ‘FDI in Insurance: Meaning and Impact’, the paper has been authored by IIM Indore faculty Prashant Salwan. It studies the impact of the amended insurance bill passed recently.

The study reveals, “Indian insurance firms need to develop physical & digital infrastructure, recruiting and training of skilled manpower, design innovative products, add new channels and develop new business models to reach the low-income people in India. These all strategies require huge investments. Moreover, it takes around eight years for an insurance firm to make profits in Indian insurance market which would come down by three years to just five years post FDI.”

According to the paper, there are 7 public sector firms and 61 private sector firms in the insurance sector, with 421,000 employees in the sector, of which 63% are in the private sector. “Out of 3.1 million insurance agents, 58% of them are in the private sector. Private insurers captured 56% market share in non life insurance and 31.3% market share in life insurance in FY21,” it says.

“Adding of FDI and international knowledge transfer coupled with digitalization will increase the service level and make Indian insurance firms more consumer friendly including claim settlement. This would benefit the common man,” the paper further states.