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A suboptimal form of insurance

5 July 2016 By admin Leave a Comment

suboptimal

Insurance regulator Irda wants promoters of insurance companies to maintain their shareholding at 50% even after listing. This is acceptable as a temporary step, not for all time to come. Insurance guzzles capital. The policyholders’ premium payments lie on the books of insurers, and prudential norms call for insurance companies to increase capital as premium collections go up.

A consequence of making the promoter always own 50% of the equity is to either restrict the growth of the company or allow only very large players to remain in insurance. This is not in the public interest. Wider ownership, a culture of active shareholder democracy and sound regulation to ensure that the insurer honours its commitment to the consumer are the long-term solutions.

However, post listing, when the cycle turns and capital requirement stabilises, promoters should have the choice to exit by selling their stakes. At present, no Indian insurance company is listed. ICICI Prudential Life Insurance has announced plans to launch an initial public offering (IPO) and get listed. HDFC Life will get listed when its proposed merger with Max Financial Services takes place. The government has also proposed the listing of four wholly-owned PSU general insurance companies. In developed markets, too, few large insurers are listed, but the trend is to move away from mutual ownership and towards listing.

See full story at blogs.economictimes.indiatimes.com

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