‘Higher FDI Cap in Insurance will Boost Investor Confidence’

Aegon chairman Alexander Wynaendts says India has lowest FDI limit & offers scope for further opening up

India has the lowest foreign investment limit in insurance in the world and raising it will 
encourage foreign investors, says Alexander Wynaendts, chairman of the executive board of Dutch insurer Aegon. In an interview with ET, Wynaendts talks about the
 insurance penetration in India, the importance of its protection element and the performance of Aegon’s joint venture in the country. Edited excerpts: 

What long-term potential do you see in the Indian insurance sector? 
If you look at the demographics, it is very clear that the long-term potential is really enormous. The population is growing; it is a young population, and wealth is being created. There is a realisation that every person has to take responsibility for securing his financial future, like saving for his future and saving for the education of his children. The challenge is that we need to help people understand that they really need insurance. Often, people buyinsurance without knowing why they buy it. Once they understand why they need insurance, it will become easy. 
Why is the insurance penetration level in India so low? 
As I said, people need to be educated that they need insurance and that cannot happen overnight. In many cases, people cannot afford it. But more and more, with growing wealth and the realisation that you have to yourself take the responsibility of a secure financial future, it will increase. But this will take time. 
In India, insurance was sold as an investment rather than a protection instrument. Do you think this was a mistake? 
It is good we focus more on the protection element. That is at the heart of our business. We provide people long-term security, which you cannot get from other financial products. What insurance provides you is investment and protection. I think the element of protection has not been receiving sufficient attention in the past. Insurance is about protecting you and your family against calamities, protecting you against not being able to save for your children’s education, and protecting you when you are old and there is no regular stream of income. It will allow you to live and allow you to take care of the basic needs of health insurance and everything that comes with it. 
How important is the further opening up of the insurance sector for you and for the sector at large? 
From the beginning, it was the intention of the government to increase the FDI (foreign direct investment) limit from 26% to 49%. The question was more about when it would take place. I think it is important for us that we should be able to have a joint venture, which is a real joint venture on a 50:50 basis. I think it will give a lot of confidence to the insurance sector, to foreign investors and it will be very positive. I really hope this takes place very soon. India does have the lowest FDI limit in the world, and we look forward to Parliament passing the law, which has been pending for over five years. It is clear that we are committed to this market and we are also confident that the law will be passed. 
How has Aegon Religare performed? 
We have had a slow start in an environment, which from an economic point of view, has been challenging. But what is important really is that we have built a very solid base for growth in future. We have a good company with strong infrastructure and excellent management, which is the most important thing. We have an infrastructure that is well placed and the fundamentals are there to continue to build on and to capture many different opportunities. The differentiation is that we are the innovators of online life insurance and that has been a great experience. We need to ensure that we do the right things and then the growth will come as there is a demand for what we are doing. 
Do you think you entered India a bit late? 
The market is large enough for many players, especially for players like Aegon that come up with specific differentiating elements. The early companies focused much more on investment-related products, especially unit-linkedinsurance products (ULIPs). Till 2009, most insurance sold byinsurance companies was ULIP and so, when you look at our company, there are two differentiating features — focus on protection and focus on innovation of the online channel. So, we are not late, in fact; we have just started helping to transform the industry. 
New York Life has left India while a few other foreign companies are looking to exit the country. Do you see consolidation happening in the Indian insurance sector? 
You know, you always see this kind of activity. I can talk about us, and Aegon is committed to this market and we are committed to stay here. We believe we have the right infrastructure to take advantage of many opportunities. Consolidation is inevitable, I do not know who is going to do it, but we will focus on developing our business organically.


Source: The Economic Times.

Date: 26/03/2014

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