(by NT Balanarayan & Nikhil Pahwa)
PolicyBazaar, possibly the largest web insurance aggregators in India has exceeded the FDI limit of 26% set by the Insurance Regulatory and Development Authority (IRDA) recently: As much as 38% of Policybazaar is owned by foreign investors, and in an email to MediaNama (in response to our story last week), Policybazaar founder Yashish Dahiya called this change in policy a “killer”, saying that “There are two killers though. One 26% FDI, who will invest if FVCI’s cannot, we are already at 38%. Insurers are already barred. The 2nd and one you have missed is, every three years, even if you apply for renewal in time, if the IRDA cannot approve your licence in time, you will need to stop business. If these two can change, we will survive and grow.” PolicyBazaar had raised $5 million last year from investors including Inventus Capital. Apart from foreign investors, they also have funding from Info Edge (Naukri).
The Insurance Laws (Amendment) Bill 2008, which seeks to raise FDI cap in the sector from 26% to 49%, was cleared by Union Cabinet through automatic route, but is still had to be cleared by the Parliament. This was expected to happen during the winter session last year, but it was never discussed in detail. A few members of the house raised concern over passing this bill and it’s not clear when it’ll be brought up again.
IRDA Rethinks FDI
On the 10th of January 2013, however, IRDA issued a notice where it said that it is looking into the FDI clause for insurance intermediaries and TPA’s (Third Party Administrators). The agency apparently received several references from stakeholders requesting it to consider increasing FDI in insurance brokers to 100% from 26% as that would not require any amendment to that Insurance Act, 1938. However, the regulations would need to be amended to increase FDI in intermediaries and TPAs. Keeping the issue of FDI in intermediaries and TPAs in mind, IRDA has set up a ten member committee headed by Suresh Mathur, Senior Joint Director of IRDA to recommend further course of action.
The committee will try to answer these specific questions:
– Whether there is a case for increasing FDI limit in case of insurance entities (other than insurance companies)
– If yes, to what extent is to be permitted?
– The implication of modifying the limit on the industry
– To study international practices in this regard
– Any other issue that is relevant in the present context
Web aggregators aren’t insurance agents: they’re marketing companies which help generate leads for sales. The IRDA doesn’t appear to have any sense of how the Internet operates, and it needs to stop trying to convert web aggregators into brokers and insurance agents. Until then, these companies have no option other than to wait for Indian government to update the FDI laws for insurance sector in India. However, such a snooze period would kill most of the existing players and it senseless. The FDI limit for an insurance marketing company is bizarre.
Secondly, the FDI limit isn’t the only clause that the IRDA needs to rethink. Instead of encouraging competition in the space, with light-touch-regulation aimed at improving customer options and experience, they’ve effectively killed competition the possibility of innovation in the insurance marketing space.