'We Are Exerting Subtle Pressure'

There is pressure but it is very subtle. The US government feels we have to work with the Indian Government and not threaten it. We realise that they have taken certain steps necessary to open up the insurance sector.

Is your visit to India a part of this effort by the US government?

Well, our government has an interest in getting India to open up its insurance sector. If you recall, in 1990, there was a dispute between the two governments, when the US government threatened to impose Super 301 trade sanctions against India. This was because our government felt that India’s heavily regulated insurance sector was a non-tariff trade barrier and constituted an unfair trade practice, and under our 1974 Trade Act the US President has the right to retaliate. Soon after this controversy, the Indian Government set up the Malhotra Committee to look into reforms in the insurance sector. And just prior to its removal, the previous government set up the Insurance Regulatory Authority. We feel that this is sufficient to indicate progress on the issue. The threat of Super 301 no longer exists.

But what does India gain by opening up the insurance sector to foreign participation?

Financial markets around the world are becoming globalised. Insurance is a financial product and if you isolate yourself, you are going to be left behind. I think the Indian Government recognises that the Indian market offers an opportunity to both Indian and foreign companies and the Indian Government, industry and consumers would benefit.

By opening up insurance to foreign companies, you are expanding the capital available to you. My estimate is that within the first few years of your Government allowing foreign participation in this sector, US companies themselves will contribute at least $400-500 million in investment. This money can then be leveraged to support investment policies of the government. It can be given out as credit to the capital markets or utilised for creating infrastructure.

Besides, the rural market, which constitutes 77 per cent of India’s population, remains untapped. In fact, no one is looking at that. People in India are looking for new, innovative and investment-oriented products. India’s high savings rate of 22 per cent plus is an attractive feature for insurance companies which are looking to provide the customer with higher rates of return than are currently available.

But there is a strong fear that if insurance is opened up, foreign insurance companies will dominate the sector and eventually come to dominate India’s entire financial sector.

Let us go back to 1956 when India’s insurance industry was nationalised. The expectations were that once this was done the performance of this sector would improve. But nationalisation has only stifled entrepreneurship and the customer is saddled with costly products. In the US insurance industry, we saw in the ’70s that competition breeds creativity and eventually the customer and economy benefit. If you don’t open up, you will continue to see low growth and Indians won’t have access to new products they so desperately need.

Korea and Taiwan opened up their insurance sectors under US pressure in the early ’80s and have witnessed threefold growth since. Besides, fears of US domination never materialised and foreign insurers have only a 4 per cent share in these markets. And, in fact, the insurance sector was the fastest growing sector in these economies. Of course, a strong regulatory presence is needed before opening up the sector to competition and I am sure the Indian Government won’t duplicate the problems that took place in those economies.

And remember, India is not opening up insurance in isolation. There are a host of countries, who I would classify as big emerging markets, similar to India, who are opening up insurance right now. China is one such country and the US government is working closely with it too.

How soon do you think India will liberalise its insurance sector to allow foreign participation?

We realise that this is a weak coalition Government trying to reform a huge bureaucracy and feels vulnerable. But we know that the Government recognises the need for this reform. We are expecting some sort of announcement in the last weeks of November, when some sort of statutory regulation might be introduced. Though, I think it will take the Indian Government three to five years to liberalise insurance completely.