In a bid to create conducive investment climate for the insurance sector in the country, Government is all set to ease regulatory norms, including licence rules, to attract foreign reinsurance firms. Faced with criticism by global reinsurers, the Government is planning to come out with investor-friendly insurance norms for them who mostly face some stumbling block on the issues like risk management, claim settlement, team management etc. Finance Ministry will soon meet all financial regulators - IRDA, SEBI and RBI and discuss all possible investment options of foreign players in this regard.
Sources told The Pioneer that the global reinsurers are not happy with the current regulatory norms in which they have been asked to do every core activities within the country itself, rather than outsourcing them from abroad. “As per the norms, they are supposed to have facilities like claim settlement, risk management and investment team in the country itself, but they are not. Therefore, keeping maximum inflow of foreign direct investments (FDIs) in the country from this sector, the Finance Ministry is planning to take a call soon in consultation with all financial regulators and vet all options in this matter.”
“The foreign reinsurers also believe that the present rules by insurance regulator will unnecessarily bring in their cost high if they run their businesses in India. We are told that they may take up the issue at the end of this month with either Insurance Regulatory and Development Authority (IRDA) or the Government,” sources added.
The move comes at a time when Government has been campaigning aggressively to fructify the ‘Make in India’ initiative with a great success on the investment front. In line with Government, Finance Minister Arun Jaitley Arun Jaitley, on Thursday, also hinted possibly at the FDI prospective that the country should implement more liberalisation measures to insulate economy from global slowdown.
However, source said that there might be other rules which could be reviewed as part of a comprehensive exercise but the details are yet to be worked out. “Though the foregoing amendments to the FDI regulations are certainly a welcome move by the Government, there are few issues which require immediate clarity from the relevant financial sector regulators,” it added.
There are over 10-12 prominent global reinsurers who want to invest and run their businesses with investment-friendly climate in India, but due some policy hurdles on licence norms, they are not able to fully start operations in the country. “Foreign reinsurers such as Munich Re, Swiss Re, Scor, Hannover Re, Xl Catlin and RGA among others have already approached IRDA for the required licence to operate in India. Some of them have already got R1 licence and now are awaiting R2 and R3,” sources said.
In fact, a foreign reinsurer generally needs three stages of licences - R1, R2 and R3 from the regulator to start operations in the country. R1 is the entry level licence while R2 and R3 levels help facilitate their business in a smoother way. The state-owned GIC Re is the only reinsurer who is fully operational in the country now.
Despite having such difficulties, IRDA Chairman TS Vijayan is quite hopeful that some global reinsurers will set up shops in India early next year, signalling that a decision on giving the second stage of licence (R2) will be taken at the board meeting this month.
“Five to six players have approached us for licences and I think by next January, some will get and open their shop. We will take a decision on this at our next board meeting scheduled for this month. I think R2 will be given at that time,” Vijayan had recently said.
Since two-and-a-half years ago, the Government has been repeatedly easing the FDI norms in sectors such as insurance, railways and defence and it almost saw record inflows of $55 billion during the last financial year.
In 2015, the Government also allowed foreign insurance player to raise their stake in their joint venture to 49 per cent. Earlier, only up to 26 per cent FDI was permitted. There are 52 insurance companies operating in India, of which 24 are life insurance business and 28 in general insurance.