Chapter 6

Globalization of Insurance

Need for Globalization

• Reduction in Transaction Costs

• Creating Liquidity

• Facilitating Economies of Scale in Investment

Global Picture of Insurance

• The world market stands at approximately US$2.3 trillion in insurance premiums,
split equally between life and non-life insurance, with London continuing to dominate
as a major supply centre

• In terms of demand, Japan and the U.S.A. are still the largest insurance markets,
accounting for over 70 percent of global premiums

• For non-life, penetration world-wide averages 3.3 percent of GDP and is highest in
the U.S.A. (almost 5 percent) due to the importance of private health and liability
insurance

Global Insurance Markets – Current Scenario

• Insurance Companies are developing primarily from industry consolidation rather
than the growth of new companies or increased overseas branching

• Mergers and acquisitions are especially prevalent in markets where there have been
a large number of undifferentiated players, none of which have controlled more than
five percent of the market

• Internet is the growing as a global distribution channel world-wide, which is

increasingly being used for marketing of insurance products and services

Globalization and Its Impact on India

• India’s developing markets afford huge opportunities for growth, surpassing anything
available in the West

• India and Korea are the two last countries in Asia to deregulate their financial sectors
• Liberalization of the insurance sectors has allowed foreign insurers to enter the
market

• For a developing country like India, growth in per capita GNP and education levels
brings an increase in demand for life insurance products

Impact of Globalization of Insurance Sector on India-

Opportunities
• Opening up of the sector will ensure a large flow of funds in two ways. More
investment will take place in the sector and further through competition

• After the nuclear tests, the government needs to hold out a hand of friendship to
the West to achieve aims related to national security. Insurance will be a visible
gesture

• From the view point of the capital markets, opening up of the insurance will have
a bullish impact

• The biggest benefit will be to the stock market because of the actual investment
flowing into infrastructure development

• The opening up of the insurance sector by the Government of India to private

and global players

Impact of Globalization of Insurance Sector on India-

Threats
• There is a fear that there will be a flight of capital from India; to ensure against
this we should stipulate that capital and dividend repatriation should start only
after some years. It is also necessary to ensure that domestic capital raised
through premium is not repatriated

• The other fear is that the foreign insurers will cream the market

• The biggest fear is ownership, that is foreign insurers do not control the
management of the insurance company through backdoor