Analysis of Foreign Direct Investment in Life Insurance Companies

The insurance market in India has seen rapid growth and development since 1999, when it was opened up to private investment after two and a half decades as a nationalized industry. Foreign players have taken advantage of the opportunities presented in this market, but their participation has been limited by Indian regulation. Currently FDI represents only INR 6046 crore of the INR 25,419 crore capitalisation of private life insurance sector. The current FDI cap of 26 per cent in India is lowest among the developing economies. With low market penetration, large population, rapidly growing economy and rising middle class, India is woefully underinsured and the time demands more increase in long term foreign capital to make investment in this sector. Therefore, the present paper mainly focuses on foreign direct investment in life insurance companies and its significance in promoting insurance sector especially private life insurance sector. Different key – variables in use for analysis are yearly premium income, business expansion, market share and profitability. To study the positive or negative impact of foreign direct investment, a panel data from 2003 to 2013 have been used for the analysis purpose. The study concludes that FDI plays a positive role in private life insurance sector which becomes clearly evident from the fact that selected insurers have been able to increase their cumulative market share from 4.5 per cent to 22.35 per cent and at the same time have been able to increase their profitability at a very fast pace since the entry of foreign players into the industry. The study also concludes that in terms of business expansion, selected private life insurers have enhanced their office network in every nook and corner of the country with only 53 districts out of 640 districts in the country remaining without insurance office. Further, this paper recommends that we should welcome the inflow of foreign investment in insurance sector because it enables us to achieve the important objectives like increasing insurance penetration and density, capital adequacy and better quality insurance products and services. The study has made use of secondary data from different authenticated sources to draw a meaningful conclusion.