In the last year since Prime Minister Narendra Modi took office, India has experienced changes and growth across numerous industries, but especially in the insurance sector. As foreign direct investment continues to flow into India and the economy exhibits growth not found in most parts of the world (7.5 percent GDP growth in 2015), there is understandable focus and attention paid to the changes happening in India.
The recent changes to the insurance industry commenced with the Companies Act of 2013. The Companies Act brought Indian company law closer to global standards by improving regulations on corporate social responsibility, mergers, corporate governance, auditor rotation, and investor protection. The Act also introduced changes to the liability of directors and officers of companies in India in the event of fraud. In the past year, D&O policies sold in India increased by 30 percent.
In the next year the Indian insurance regulator plans to announce more than 40 additional regulations that will cause further evolution of the regulatory landscape. A recent example is that effective January 1, 2015, Insurance Regulatory and Development Authority (IRDA) guided all Indian insurers to raise their rates to at least the burning cost. This has resulted in some immediate increases in premiums in some cases and is expected to result in more increases across several lines, including property and auto.
Another change that has significantly impacted the insurance industry in India is the recent legislation that raised foreign direct investment limit in Indian insurers from a limit of 26 percent to 49 percent. By investing more than $200M USD, AXA became the first foreign insurer to increase their stake in their joint ventures with Bharti AXA General Insurance and Bharti AXA Life Insurance. This is likely a sign of things to come as additional foreign insurers look to increase their ownership stakes as well.
The last change affecting many companies in India is the June 1, 2015 increase in the federal service tax from 12.36 percent to 14 percent, which applies to insurance premium tax. This is part of the larger movement by Modi’s government to streamline and improve the country’s tax system; more changes are expected in the future.
India is currently the second most populous country in the world and within a generation will be the most populous. GDP is projected to continue to grow and foreign direct investment will follow this growth. Despite the myriad of opportunities, doing business in India is not without risk or challenges. Along with the growing litigious environment, corruption, bribery and corporate fraud continue to be the top risks of doing business in India. India ranks 85th of 175 countries in Transparency International’s Corruption Perceptions Index and 142 of 189 in the World Bank’s Doing Business rankings.
India will continue to be a dynamic and fast-moving environment in which to do business. MNC’s with operations in or an eye on expanding into India would be well advised to keep abreast of all developments and work with their advisors to properly navigate all current and future risks.