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India slowly reforming protectionist stance

The Indian regulator has loosened its controls on insurance broking amid signs that the world's largest democracy is beginning to respond to criticism of its highly regulated and protectionist approach.

On 9 August, the Insurance Regulatory and Development Authority (IRDA) published new rules that will allow banks to act as direct insurance brokers and sell products to more than one insurer.

Under current rules, banks acting as direct brokers are allowed to sell to one life insurer and one non-life insurer.

The new rules may boost the low insurance penetration in the country, if banks take up interest in the scheme.

The measure comes after Warren Buffett decided to pull Berkshire Hathaway out of the Indian insurance market in July, having entered the country only two years previously.

According to reports, UK insurer Aviva is also considering withdrawing from India by ending its $500mn joint venture with Dabur Group.

Lloyd's has previously expressed frustration about the regulations through its former chairman Lord Levene.

Under the new rules, brokers would not be subject to capital requirements but would have to apply for a license from the IRDA.

Brokers must maintain a deposit of 5mn rupees ($81,000) for a license lasting three years, subject to renewal.

The firm would hand its accounts to the IRDA, which has a right to inspect its books, records and documents subject to 10 days' notice. The broker would also have to take out professional indemnity insurance.

The regulator is autonomous from central government and was established in 2000, when India's parliament passed a wave of reforms to liberalise the insurance sector.

Separately, the Indian government is seeking to raise the insurance industry's foreign direct investment (FDI) cap from 26 percent to 49 percent, although the proposed Insurance Laws Amendment Bill is likely to face some opposition in parliament.

The bill also seeks to establish Lloyd's as a foreign insurer and to allow foreign insurers to start branch offices, which is currently forbidden.

IRDA chairman J Hari Narayan voiced his support for raising the FDI cap last year, saying: "I am in favour of hike in the FDI limit for the insurance sector. Unless we go for 49 percent, we will not have the kind of capital required to underpin the growth of the industry. This sector requires a lot of money."

According to Swiss Re, gross written premiums in India were equivalent to 4 percent of GDP in 2012, compared to 12 percent of GDP in the UK.

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