Allowing insurance companies to have a composite licence could trigger a round of consolidation, according to a senior analyst at Moody’s Investor Service.
Both the insurance regulator and the finance ministry have proposed issuance of a composite licence. If the government decides to go ahead with its proposal, it will need to amend current insurance laws that specify separate licences for life, non-life and reinsurance.
“If we take a macro view, the overall sector product risk diversification will improve for composite insurers. The challenge will remain whether they have the underwriting expertise to convert the risk diversification into profits. One thing that will aid them is distribution and financial flexibility will improve. As a result, there will be enough investor interest,” said Mohammed Ali Londe, VP -senior analyst.
“One of the ways we see this happening is that instead of non-life companies acquiring a composite licence, they will merge with life companies so that they can get the underwriting and distribution capabilities,” he added.
According to Londe, life insurance could manage a quick win in health insurance by merging latter companies with themselves. “Overall in India, life insurance companies have been able to maintain better solvency and capital buffers. As a result, general insurers who have future pressures of solvency might find it attractive to merge,” he added.
Companies can opt to build a new business by acquiring a composite one, but this would require more capital than an M&A.
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Universal cattle insurance scheme on cards
The central government is considering introducing a universal livestock insurance scheme that would cover all types of cattle, including indigenous and cross-bred breeds, as well as yak. The scheme could be modelled after the Pradhan Mantri Fasal Bima Yojana, which is already in place for the crop sector, according to reports.
This could provide relief to millions of cattle farmers in India who have suffered significant losses due to animal diseases. The scheme could be announced in the upcoming Budget and the cost for the first year may be scaled up later depending on take-up of the scheme. The scheme may be structured in such a way that farmers would pay a low premium and the remaining premium would be shared by the state and the central government.
The scheme would have a low premium for farmers, with the remaining premium shared by the state and central government. This aligns with the government’s “cow protection” initiative. Currently, many insurance companies offer their own cattle insurance products. The government has also previously run a centrally sponsored scheme called the Livestock Insurance Scheme on a pilot basis in certain districts.
This scheme only covered cross-bred and high-yielding cattle and buffaloes, with a subsidised premium and a maximum of two animals per beneficiary for a policy of three years. The ultimate goal of the scheme is to provide protection for farmers and those in cattle rearing and improve the quality of livestock and their products. India has one of the largest cattle populations in the world, with a lower milk yield per indigenous animal compared to cross-bred or buffaloes.

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