Finance Minister Arun Jaitley presented the budget 2016-17 in the parliament on 29 February. Insurance sector had reasons to cheer as FM was generous to propose a spate of sops for the sector. Allowing general insurance companies to be listed on the stock exchanges, launching a new healthcare insurance cover of Rs 1 lakh per family, allowing foreign direct investment (FDI) upto 49 percent via automatic route, proposal to reduce service tax on single premium annuity (insurance) policies were some of the proposals announced by FM in his budget speech.
There are four general insurance companies in India New India Assurance Company, National Insurance Company Ltd, Oriental Insurance Company Ltd, Oriental Insurance Co, United Insurance Co, Oriental Insurance Co which stand to gain from new proposal allowing general insurers to raise money from markets.
Foreign insurers will be allowed to increase stake in Indian JVs (Joint Ventures) via the automatic route from current 26 percent to 49 percent, in the upcoming budget session of the parliament, said reports.
Currently, FDI (foreign direct investment) via automatic route is limited to 26 percent post which FIPB’ s (Foreign Investment Promotion Board’ s) approval is required. It was speculated that the move could attract FDI worth $1 billion to $3 billion to the sector and make India an attractive destination for global insurance stars such as Llyod’ s and Berkshire Hathway.
Increased foreign participation and investments is good for the sector as insurance penetration in India stands at a meager 3.9 percent, which is amongst the lowest in the world.
The year 2015 saw many foreign insurers increase their stake in domestic JVs after the parliament increased FDI ceiling in domestic insurance companies from 26 percent to 49 percent.
Major foreign insurance players such as Aviva, Mitsui Sumitomo, Aegon, Allianz SE, Mitsui Sumitomo, Metlife, Prudential Plc, AXA SA and Sunlife already operate in India through their Indian joint ventures. In 2014-15, foreign fund flows grew 27 percent.
Reducing service tax on premium payment in annuity plans will encourage senior citizens to opt for annuity insurance plans for a steady income flow. This will also increase insurance penetration in the country.
