On private participation in insurance: The consumer will definitely have a better choice of products and in order to stay competitive, existing companies will improve their level of service. It could even improve the pricing of insurance products. Right now the overall penetration of insurance is quite low. One could hope that competition and the larger number of players would improve penetration.
But general insurance is where I see the major competition developing. Since India is industrialising fast, the new business generated would be quite large. Though existing companies would continue to do well, they would have to work hard to retain their market share. Besides, the industrial sector should see an increase in the number and range of products. The new kinds of risks that are coming up in sectors like telecom throw up peculiar kinds of challenges which will be met by sophisticated products.
On why life and general insurance companies should be separate entities: They are two different kinds of businesses. General insurance (GI) contracts are usually year-to-year contracts. While life insurance (LI) contracts are for 25-30 years, sometimes for life. Therefore, the life fund with a company becomes very large and it is a kind of trust on behalf of the consumer. So we did not want to see any mixing of funds and accounts. There could be a tendency for large risks of GI to be met by LI funds. Individuals covered by LI would then be anxious about the safety of their funds. But we have recommended that if a single corporate house wants to enter both fields of insurance it can float two separate companies with fresh capital.
On restructuring state-owned insurance companies: Allowing private sector entry into the business without restructuring the state-owned enterprises will definitely be handicapping the state-owned companies. If they are not made board-managed, their responses to market situations will definitely be tardy. In fact, insurance companies have been demanding managerial autonomy for long. GIC and its subsidiaries were against audit by the CAG. This handicaps their ability to settle claims as they might be criticised later.
On a level playing field for private and state-owned insurers: State-owned insurance companies may have been sheltered till now, but they have some advantages over the new companies. In fact, it'll take years for the new companies to come up to their level. The fact that the Government stands behind them is already a major advantage. Both have an equal number of advantages and disadvantages and it will be best for them to compete at the same level.