The opening up of insurance, the richest business in the world with overwhelming cash, was a big issue. There was a hue and cry before the IRDA bill was passed in the parliament. Insurance sector has enjoyed monopoly controlled by the central government companies and has just opened to private players. However, in the initial days itself, there is a set back for the private players saying that they have to cede 20% of their general insurance business in India to General Insurance Corporation (GIC).

GIC has four subsidiaries viz. National Insurance Co., Oriental Insurance Co., United India Insurance, and New India Assurance Co. GIC currently functions as a national re-insurer through a voluntary arrangement with its four subsidiaries. Under the system, the four subsidiaries have to pay a minimum of 20% of every policy they collect to GIC which has suited the interests of GIC eminently. But does this have to apply to the private insurers too is the million dollar question?

The leading Indian players already in queue include SBI, ICICI, HDFC, and Reliance. There are 22 multinationals planning to enter India out of which the leading companies like Aetna (USA), Sun (UK), Allianz (Germany) and Tokyo Marine (Japan) already have a presence in India.

However, these companies are up in arms against the ceding of 20% of their business to GIC. They are trying to draw support from the Malhotra Committee Recommendations on insurance sector reforms, which had proposed that GIC be given the exclusive task of a national re-insurer and that its four subsidiaries be delinked from it. Thus, instead of directly objecting to pay 20% of their policy business to GIC, they are emphasizing on the suggestion of the Committee on separation of four subsidiaries that pay amount to GIC. What could be advantages to the MNCs with this option?

The reasons obviously is that, once the subsidiaries are separated from GIC, the contribution amount to GIC would go down drastically and it would be extremely difficult for GIC to have a similar presence in India. Moreover, the private and foreign players will get a chance of merging or acquiring the strong GIC subsidiaries. The 20% payable by private sector to GIC could be aimed at increasing market retention and conserving foreign exchange by forcing the private companies to put in a stipulated sum with the national re-insurer.

GIC chairman has been demanding a four year period protection against the entry of private insurance players. The recent study on insurance shows that LIC would loose 45% and GIC would loose 65% of its existing market shares. There is likely to be a drastic impact on these companies as a result of this. This is tip of the iceberg of GIC’s insecurity. This is the reason for GIC demanding a four-year protection. And will these four years be enough for GIC to reinforce its control on the insurance business in India? Whatever the time period for GIC to become competitive, at present, the private insurers have to abide by the rule of parting with their earnings to make GIC survive. Its only after the real competition begins, we will know if the private companies can still overtake the old time leader. But the question is will GIC actually benefit and will the insured party be better off as a result?