ONE of the most sensitive subjects in Indian politics is insurance sector reforms. Both the mainstream parties, the Congress and the Bharatiya Janata Party (BJP), are convinced on the need for further reforms in the sector and even many of the smaller parties are willing to go ahead with changes.

However, stiff resistance from the Left and the ultra-Right parties has stone-walled reforms in the sector for years. The Leftists have traditionally opposed opening up of the sector for a specific reason – most of the trade unions in public sector life and general insurance companies (and also in the state-owned banking sector) are affiliated to the Communist parties.

Insurance industry trade unions have resisted calls for changes – from the time computers were introduced in the industry about two decades ago, to allowing private players into the sector. Top union leaders usually enter state-level and national politics after a few years in the industry, with the Left parties providing them the opportunities.

Most of the inefficiently-run state-owned companies were over-staffed, but were not worried as there was no competition in the industry. Despite frequent strikes, the unions and the management maintained a good equation in the absence of any competition. The Indian insurance industry was, however, the most inefficient and among the least-insured in the world.

After years of dithering by the political class, the insurance industry was opened up to competition in 2000. However, the half-hearted consensus saw crucial reforms stall. The BJP-led National Democratic Alliance government capped foreign equity in the sector at 26 per cent, discouraging many international players.

When the Congress-led United Progressive Alliance (UPA) government came to power in 2004, it promised to raise the ceiling to 49 per cent. Foreign governments, including the US, and international insurance giants, brought pressure on the government to raise the ceiling, but since the UPA was dependant on the support of the Left parties, it did not have the courage to hike the ceiling.

But with the Leftists having withdrawn their support to the UPA – over the issue of the Indo-US civil nuclear deal – the Congress saw an opportunity to push through the reforms. Last week, in the midst of the usual din in Parliament, the government pushed through two crucial bills in the upper and lower houses of Parliament that could accelerate growth in the sector and also generate thousands of new jobs (most of them non-unionised).

The Insurance Laws (Amendment) bill aims to raise the ceiling on foreign capital in insurance companies to 49 per cent from the current level of 26 per cent. Indian promoters of the companies would also not need to divest part of their stake within 10 years of starting operation.

The proposed changes would also allow Lloyds, the London-based society of re-insurers, to open a branch in the country without going in for a Companies Act registration.

REFORMS in the insurance sector have brought about a dramatic transformation in the industry. Insurance is one of the fastest-growing sectors, generating a large number of jobs.

Private insurers have pumped in about Rs210 billion into the sector since it was opened in 2000. According to J. Hari Narayan, chairman, Insurance Regulatory and Development Authority (IRDA), the industry is expected to grow by 17 per cent in fiscal 2008-09 (ending March 31, 2009). “Our projections are that if GDP grows at 7.6 per cent, premiums would grow at 17 per cent,” notes Narayan.

The industry is likely to continue growing at a brisk pace over the coming years. According to analysts, the life insurance business in India is expected to balloon to $52 billion by 2010, up from $35 billion in 2007-08. Life insurance companies reported a 23.3 per cent surge in premium income last fiscal to $19.25 billion, while general insurers saw a 14 per cent growth in premium income to $6.17 billion.

Today, there are 21 life insurance companies (as against just one in 2000) and 20 general insurance companies (four in 2000). Total assets of the life insurance companies add up to a huge $180 billion.

Of course, the slowdown in the Indian economy has had its impact on the insurance business as well. According to IRDA figures, there was a 38 per cent fall in premium income in October as compared with the previous month. Life insurers earned new premium of Rs50.87 billion in October (as against Rs81.48 billion in September) by selling 3.33 million policies (3.74 million in September).

The 20 private life insurers accounted for Rs23.04 billion worth of new premium income in October (Rs34.17 billion in September) by selling over a million policies (1.3 million in September).

The average premium per policy (APPP) in October was also down at Rs15,252, from Rs21,770 in the previous month. Private insurers had an APPP of Rs26,271. Harpal Karlcut, chief executive of the newly established Canara HSBC Oriental Bank of Commerce Life Insurance (a joint venture between the international finance giant and two Indian banks) says the life insurance industry “cannot escape the cascading impact of the global slowdown.”

But most of the private sector life insurers are growing at a frenetic pace. Reliance Life Insurance, for instance, has seen a 100 per cent growth year-on-year, and expects similar growth in the current fiscal. Top private life insurers include ICICI Prudential Life, Bajaj Allianz Life, SBI Life and HDFC Standard Life.

THE general slowdown in the Indian economy has impacted several sectors including retailing, civil aviation, media and entertainment, housing and infrastructure and automobiles, all of which were growing a frenzied pace. Most of these sectors have virtually frozen all new recruitments and some are even laying-off personnel.

But the insurance sector is expected to continue its hiring spree. Between July and September 2008, it added over 53,000 new employees, taking the total number of people employed by the industry to 300,000. Another 60,000 persons are expected to be recruited over the next one year by the life insurance industry.

Max Life New York, for instance, plans to raise its total head count from 15,000 executives to 25,000 by 2011. The insurance industry also provides indirect employment to agents, who market its products. Max Life will be raising the number of agents five-fold, from 60,000 to 300,000 in the next two years.

Other insurers are also planning to double their employee and increase their agents by three-fold to five-fold over the next couple of years, to meet the growing demand for insurance.

With private insurers growing by 55 per cent during the first half of the current fiscal, they are expected to continue dominating new business in the future. Private life insurers today account for 40 per cent of the market share, from zero in 2000.

Nearly 1,500 new branches were set up by the 21 life insurance companies (1,300 by the private sector) during second quarter of the fiscal (July-September, 2008). Contrary to what critics feared – that international insurers together with private Indian partners would focus only on urban areas – the private sector has been aggressively expanding in the rural areas.

According to industry estimates, more than two-thirds of the over 10,000 branches of life insurance companies are located in semi-urban and rural areas. In fact, private insurers have launched innovative schemes, tying up with fertiliser firms and other rural businesses to market policies.

India’s stagnating life insurance industry took off on a growth spiral following the opening up of the sector in 2000. The changes that have now been proposed to the insurance legislation will hopefully set the industry on a different orbit, ensuring that the vast majority of the uninsured in the country will get some basic coverage.