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India Jars Foreign Insurers With 11th-Hour Rule Change.

Six years of suspense are ending with the enactment of a law to open India's insurance business to foreign players. But for some 40 foreign insurers that have prepared-to enter the market, the celebration was tempered by two unexpected and somewhat unwelcome changes from the original bill moved in Parliament.

New provisions of the Insurance Regulatory and Development Authority Act will give preference in registration to companies that provide health insurance, and insurers will be required to do business in rural areas and invest in the social and infrastructure sectors, an area that includes government securities.

The government also accepted an amendment suggested by the opposition Congress Party that the new insurance companies will have to meet investment obligations in rural areas and the unorganized industrial sector. Each violation of the directions of the insurance authority would attract a penalty of as much as 2.5 million rupees, or about $57,500.

The new provisions haven't unnerved foreign insurers that are determined to build roots in India. "We recognize our corporate responsibility to support the development of the country we are entering," said Antony Jacob, chief executive officer of India operations for London-based Royal & Sun Alliance Insurance Group plc.

"We are delighted that the final hurdle has been removed;' said Sandy Davidson, representative manager for Britain's CGU plc in India. "I do not think the changes in the bill will be a problem. We are very big in rural areas in other markets and do not mind doing business in India's rural areas."

N.N.Joshi of ING Insurance, a unit of ING Group of the Netherlands, said, "A lot has been left to the IRDA to decide. I am sure the regulator will take a pragmatic view of issues like making it compulsory to do a certain amount of business in rural areas."

During the debate on the insurance-bill-in-Parliament, opposition members expressed worry that foreign partners would try to circumvent the law and hike their stakes in private insurance companies beyond the 26% they are allowed to hold.

But Finance Minister Yashwant Sinha said there were enough safeguards against such a possibility in the act. "More than the actual flow of funds, the passage of the IRDA Bill will create an overall atmosphere of confidence in the economy," Sinha said. The finance minister made it clear that Indian subsidiaries of foreign companies won't be able to participate in insurance ventures as "domestic companies," because the definition of foreign and domestic companies given in the Income-Tax Act will be applicable.

"The limit of 26% foreign equity is not a problem as long as the Indian partner recognizes that the foreign partner should have a say in management," Jacob said.

"We have no problem about our partner's ability to raise the necessary capital," said CGU's Davidson, whose company has aligned itself with the Hindustan Times newspaper groups.

The new law gives statutory powers to the regulator, IRDA, and takes away the monopoly positions enjoyed by the two government-run insurers. New companies can be registered with 74% equity held by Indian promoters and 26% owned by their foreign partners.

More than 25 foreign insurers have signed partnership agreements with Indian companies and are waiting for registration to begin. IRDA Chairman N. Rangachary has said it will take eight months for licenses to be issued once registration begins.
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Comment:India Jars Foreign Insurers With 11th-Hour Rule Change.
Publication:Best's Review
Article Type:Brief Article
Geographic Code:9INDI
Date:Jan 1, 2000
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