Lack of legacy distribution network a challenge for foreign cos

The Union Cabinet’s decision to raise the foreign direct investment (FDI) limit in the insurance sector to 100 per cent is unlikely to significantly boost foreign investment as distribution remains a critical factor, requiring overseas players to partner with Indian businesses, experts said.

- AATHIRA VARIER

Interest is expected to be higher in general and health insurance than in life insurance, which is far more dependent on distribution networks, they added.

In addition, the proposed changes in the Net Owned Funds (NOF) for foreign reinsurers to %1,000 crore from %5,000 crore, are likely to bring them on par with the IFSC Insurance Office (IIO) in GIFT City and might evince some interest from foreign reinsurers to enter through the mainland route, they said.

According to Kamlesh Rao, MD & CEO, Aditya Birla Sun Life Insurance, while the proposal to increase the FDI limit is a progressive step which will lead to fresh thinking, product innovation and other aspects in turn strengthening customer experience, the business is deeply dependent on the distribution system that cannot be replaced overnight.