Press Releases 2005

U.S. Urges India to Open Insurance Sector

06 October 2005

NEW DELHI - India needs to truly open up the insurance market like it has done in the information technology, telecom and aviation sectors, U.S. Ambassador David C. Mulford said at an international conference on the insurance sector organized here today.
 
The Ambassador was addressing international participants at the October 6-7 conference on "Building a Vibrant Insurance Market in India" jointly organized by the U.S. Agency for International Development (USAID) and the Insurance Regulatory Development Authority of India (IRDA). Under a four-year $10 million initiative, USAID is assisting IRDA in the development of the Indian insurance sector.

Ambassador Mulford said: "The heavy hand of government still dominates the market, with price controls and limits on ownership and other restraints.  We have seen what happens in India when the market is truly opened up. We saw it in the IT sector, we saw it in the telecom sector, and we are seeing it in the aviation sector.  Why can't insurance be next?" 

While noting the accomplishments in the insurance sector, the Ambassador said: "India's insurance market remains very small compared with some of the major emerging markets.  South Africa and South Korea with a fraction (one-twentieth) of India's population do at least twice as much insurance business as Indian companies did in 2004.  This is a major missed opportunity for India's economy.  When markets are competitive and responsive to consumer demand and preference, it is the consumer that benefits in terms of lower cost and increased ability to manage risks.  A vibrant insurance market supports the economy by providing long-term capital -- equity and debt -- to the private sector." 

Ambassador Mulford said:  "Insurance is a capital-intensive industry.  It is also a long-gestation business.  India's insurance industry needs capital, and a major source of capital would be from foreign investors, who are now limited to 26 percent ownership.  India needs to raise the cap on Foreign Direct Investment (FDI) to attract capital for the industry." 

The Ambassador stressed the need for India to restore the confidence of foreign investors: "For some time there has been an understanding that the FDI cap will be raised to 49 percent, and many companies entered the Indian market with this expectation.  Failure to follow through in raising the cap is increasingly seen by investors as a breach of faith.  I have come here today to say that this promise needs to be delivered, not 5 years from now, but soon, if India wishes to regain its credibility in the eyes of foreign investors." 

The Ambassador said he was convinced that the "private sector growth will nurture the U.S.-India relationship of tomorrow and be the engine behind India's future and its emergence as a global player." After the Ambassador, IRDA Chairman C.S. Rao addressed the conference.

The aim of the conference is to increase understanding of the current state of the Indian insurance market, identifying impediments to its further growth, and developing strategies to overcome these barriers. BearingPoint, a consulting firm contracted by USAID, has worked closely with the IRDA, the insurance industry and other stakeholders to develop institutional capacity, strengthen existing procedures and regulations, and reduce barriers to the development of the market and protection of consumers.