Reliance approaches IRDA for insurance licence

Mumbai, Aug 24: The move by corporates to enter the insurance sector has gathered momentum with the Reliance group filing applications for...

Mumbai, Aug 24: The move by corporates to enter the insurance sector has gathered momentum with the Reliance group filing applications for two ventures with the Insurance Regulatory and Development Authority (IRDA). The Rs 30,000-crore Reliance group has sought the nod of IRDA for making forays into life and non-life insurance segments.

Reliance has floated two new wholly-owned subsidiaries — Reliance General Insurance Ltd and Reliance Life Insurance Ltd — for transacting life and non-life insurance business with an initial investment of Rs 200 crore each. It will enter the reinsurance business at a much later stage. The queue to enter the insurance sector is now getting longer. At least two groups — FMCG major Dabur-All State and Prudential-ICICI — had applied for licences on August 16, the first day when IRDA opened the window for applying new insurance licences.

Reliance will also be the only domestic company to enter the insurance sector without a foreign tie-up. While there is no apparent reason for taking a swadeshi route’ by not seeking any foreign tie-up, one reason could be the severing of many foreign tie-ups, especially in the auto sector. All other aspirants in the insurance sector are inclined to join hands with foreign players out of financial and technological necessity. There is also a demand from the foreign players to raise their stake from the present 26 per cent.

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The list of companies which are in the race to undertake both life and non-life insurance businesses by forming joint venture with domestic players include American International Group (with the Tatas), German major Allianz (with Alpic), French major Axa (with Cholamandalam) and the UK-based CGU (with two separate tie-ups). Other companies like Royal Life & Sun (with TVS Sundaram), HDFC-Standard Life, Max-New York Life and Kotak Mahindra are expected to submit applications in the near future. Indian automobile companies are all geared up for launching their own general insurance outfits. While Bajaj Auto and Ashok Leyland have already started looking out for partners to enter the lucrative insurance arena, others like Hero Honda and Mahindra and Mahindra (M&M) are adopting a wait-and-watch policy.

The Reliance blue-print has outlined plans for both weaning away the dissatisfied customers of the existing public sector insurance companies and spread into new market by capitalising on Reliance’s brand name as well as the network with world class customer service and varied products. However, the proposed outfits would not undertake the captive business. The immediate target will be to capture the small and medium corporate segments in non-life business and rural and semi-urban segment of life insurance market.

The liberalised investment norms notified by the government last week have stipulated that insurance companies would be allowed to invest 60 per cent of their pension funds in non-mandated category of investment, including triple A’ rated corporate bonds and debentures. The remaining 40 per cent should be invested in government and other approved securities.

Currently, Life Insurance Corporation has to invest 75 per cent of its funds in mandated securities. Of this, 50 per cent has to be government securities. However, in the case of non-life segment, General Insurance Corporation has to invest only 45 per cent of its funds in mandated securities.