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November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

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Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

DECEMBER 10, 1999 VOL. 25 NO. 49

A 'Colossal' Market
Global insurers plan their passage to India
By ARVIND KALA New Delhi

If Lajwanti and Moti Lal Mantoo had a vote in India's Parliament, the long-delayed Insurance Regulatory Development Act would have two more backers. It took three years for Lajwanti, a widow, to collect on a 6,000-rupee policy from state-owned monopoly Life Insurance Corp. The check the company issued never got to her - someone fraudulently cashed it. Horticulturist Mantoo is also seething. In 1997, he bought irrigation equipment valued at 1.2 million rupees ($27,600 at the current exchange rate). The goods were stolen from a warehouse in Delhi. The police recovered half the property, but until now, state-owned Oriental Insurance has not paid for the missing half.

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Cases like these help the cause of the proposed Insurance Regulatory Development Act (IRDA), which is almost certain to be passed next year. The ruling BJP party voted against the bill in 1995, when it was still in opposition. These days, it is strongly pushing IRDA. (The irony: the Congress Party, the original proponent, threatens to scuttle the measure because of something entirely unrelated - the government's implication of slain former PM and Congress leader Rajiv Gandhi in a bribery scandal.) By opening the $4-billion insurance industry to the private sector, IRDA will improve services through competition, boost the national savings rate and help fulfill India's commitment to the World Trade Organization to deregulate financial services by 2003.

The world's insurance giants are salivating. "The Indian market is colossal because 80% of its insurable population isn't covered," says Abhaya Jain, country manager of America's Aetna International. Some 20 other global players are gearing up to offer protection to India's nearly 1 billion people. Canada Life, Cigna, Metlife, All State, Prudential, Sunlife and Zurich Insurance have already signed preliminary agreements with local partners. Under IRDA, foreigners can own just 26% of an insurance company. But says Sandy Davison of Britain's CGU Life Insurance: "Eventually, India's speeding up economic reform will allow us to raise our stake to 51% and even more."

Indian conglomerates, financial institutions and even newspapers and mobile-phone operators are jumping in. The Tata group, the country's largest business house, has tied up with America's AIG. Kotak Finance is a partner of another U.S. company, Chubb Corp. The Hindustan Times is a partner of CGU Life Insurance. Even cash-strapped Usha Ltd. is looking at the cross-selling potential of its mobile-phone network. "The 30 million people in the three states where we operate will respond to Usha when we sell them insurance," says managing director S.K. Mittal.

Locals must carry most of the financing since foreigners can own only a minority stake. IRDA mandates $23 million in paid-up capital for insurers and twice that for re-insurers. Analysts estimate that a newcomer will spend $69 million in the first four years. "Not too many Indian partners can afford a 74% stake," says Anil Sahgal of Dundee Investment Management & Research in New Delhi. And that 74% must be diluted to 26% after 10 years, as shares in the company are sold to the public in an initial public offering or distributed to policy holders. Uday Kotak, vice chairman of Kotak Finance, would like to see that provision changed. "A 49% equity [for the Indian partner] would be perfect," he says.

Given their expected minority position, foreigners may face operational problems. They will want a free hand to use their expertise in competing with the state monopolies and each other. For all their faults, the state-owned insurers are formidable. Life Insurance Corp. (LIC), formed from 246 nationalized private companies in 1956, boasts 558,000 agents and $29 billion in reserve funds. The General Insurance Corp. - GIC - owns four subsidiaries organized from 107 companies nationalized in 1973.

"LIC and GIC are currently unbeatable," says Naren Joshi, an adviser to ING Insurance of the Netherlands. But they have efficiency and public-relations problems - and face a record payout from the super-cyclone that devastated Orissa state in October. LIC takes an average of 87 days to settle a claim. Last year, GIC's four subsidiaries failed to process 570,000 car-accident claims; a fifth of them were more than three years old. "Policyholders see these monopolies as tormentors," says consumer-rights advocate Pushpa Girimaji. The newcomers hope to capitalize on these shortcomings. Too bad they cannot write themselves a policy protecting against business failure.

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