Submission to Standing Committee on International Trade for its Study of the Canada-India Comprehensive Economic and Partnership Agreement (CEPA)

Date de parution : 01/24/2013
Personne(s)-ressource(s) : Janice Hilchie

1. Introduction

The Canadian Life and Health Insurance Association (CLHIA) welcomes the opportunity to share the industry's views with respect to the Standing Committee on International Trade's current study of the Canada-India Comprehensive Economic and Partnership Agreement (CEPA).

Established in 1894, the CLHIA is a voluntary trade association that represents the collective interests of its member life and health insurers. The Association’s membership accounts for 99 per cent of the life and health insurance in force in Canada and administers about two-thirds of Canada’s pension plans. Internationally, Canadian lifecos have a presence in over 20 jurisdictions around the world and generate over $56 billion or 44% of their total annual premiums from foreign operations.

The Canadian life and health insurance industry is a successful and active player in the Indian market and has had a presence there going back over a century. The Canadian life and health insurance industry is certainly encouraged by the prospects of stronger economic ties between Canada and India. We commend the Government for identifying the Canada-India CEPA as one of its priorities.

The combination of India's rapid economic development, the steady rise in household incomes, and a general awareness among Indians of the value of long term savings and insurance have contributed to a marked increase in the insurance penetration rate in the country. This impressive growth is likely to continue as the country continues to develop.

2. Canadian Life Insurers' Operations in India

    Having first entered India in 1892 and returning to the country in 1999, Sun Life Financial, through its joint venture (JV) Birla Sun Life Insurance, operates the fifth largest privately-owned life insurance company in India. The joint venture company operates over 600 branches across the country. It directly employs 12,000 people and has an agency workforce of 132,000. Sun Life has an additional joint venture - Birla Sun Life Asset Management - which is the fourth largest asset management company in India (in terms of assets under management). Sun Life also operates a service center in the Indian city of Gurgaon that provides technology and business support to Sun Life's operations around the world. In late 2010, Manulife Financial announced its intention to enter the Indian life insurance market. It is currently evaluating the life insurance marketplace to decide its entry strategy and is considering potential local partners in a joint venture.

    3. Canadian Life Insurers' Product Line Offerings in India
      Through its joint-venture, Sun Life sells various life insurance, group life insurance, group savings, wealth management and mutual fund products in India. For individuals, there are various long-term savings products that cater to individual needs as they relate to education, retirement and wealth management. It also provides term life insurance options and basic health insurance benefits. At the group level, there are group life and retirement insurance plans. To serve India's large rural population there are basic life and health insurance plans and, as of 2010, group micro-insurance products, such as term life, were introduced. Lastly, Sun Life has entered the investment products market in India by selling a range of mutual funds to suit individuals and companies on behalf of their employees. It also offers a diverse range of asset management products and services.

      4. Impediments to Canadian Life Insurers' Operations in India

      The decision of a Canadian lifeco to commence operations in India comes with the full knowledge that they are making a long-term commitment in terms of their presence in the country and in spite of the potential for setbacks and 'growing pains'. Indeed, Canadian life insurers with operations in India are successfully competing in the country's insurance market despite the potential risks. Over time, they have also developed a positive relationship with the governmental and regulatory bodies with whom they interact on a regular basis.

      The industry appreciates the importance the Canadian government attaches to the Canada-India CEPA negotiations and hope that a successful conclusion to the negotiations can be achieved. We furthermore believe that such an agreement has the potential to unlock new opportunities for Canadian lifecos in India while at the same time reinforcing the industry's competitiveness and raising its profile in the Indian market.

      Impediments affecting the operations of foreign-invested life insurance companies in India have been steadily reduced over the years. However, there is one notable exception -- in place since India began granting entry to foreign life insurers in 1999 -- a 26% restriction on foreign ownership.

      Outlined below is a brief summary of what we believe are the most significant impediments to Canadian life insurers operations in India.

      Foreign Equity Cap Restriction

      The most significant issue in India for Canadian life insurers is the legislative limit on foreign equity ownership. Foreign life insurance providers are permitted to enter into joint ventures with Indian-owned companies, but at present their equity stake is limited to 26 per cent.

      The Indian Government has presented the Insurance Laws (Amendment) Bill to Parliament which would introduce important changes to the country's Insurance Act. Most prominently, the Bill would raise the foreign equity cap from 26 to 49 per cent. It would also delegate more authority to the Insurance Regulatory Development Authority (IRDA) in, for example, setting distributor commissions.

      The Canadian life and health insurance industry strongly supports this Bill and believes that such legislative and attendant regulatory changes would nurture, and not hinder, India's economic growth by promoting more FDI into the country while also responding to the growing needs of Indian consumers. Maintaining the 26 per cent cap is the primary reason why other Canadian life insurers have shown a reluctance to enter the Indian market.

      The Indian government has generally been keen to attract additional levels of FDI into the country. An increase in the foreign equity cap above the current 26% limit would contribute to this goal without fundamentally altering control of JV companies. At the same time, FDI of this kind tends to be a stable, long-term commitment. Indian joint-venture partners would benefit by being able to redeploy their capital elsewhere, as they see fit.

      Finalizing the Canada-India Foreign Investment Protection Agreement (FIPA)

      Although Canadian life and health insurers have been successfully competing in India's insurance market without it, the industry is a strong proponent of bringing negotiations on the Canada-India Foreign Investment Protection Agreement (FIPA) to a successful conclusion as soon as possible. The additional certainties, guarantees and protections that are captured through a FIPA in terms of how the signatory governments treat foreign investors would be welcome. On this note, we find it unfortunate that India recently announced a freeze in the FIPA negotiations. We hope that this is nothing more than a temporary setback and that negotiations can resume in short order.

      Agent compensation

      It is also important to remove the caps on compensation contained in the Insurance Act in order to provide insurance companies with the flexibility to design agent compensation plans that are aligned with their respective business strategies. In the absence of this, the professionalism of the sales agents is constrained as companies are forced to work with a “part-time” agency force, potentially leading to issues pertaining to sales practices and market conduct.


      The Canadian life and health insurance industry is seeking commitments that, where any part of the Indian pension system is open to private sector suppliers, Canadian providers are granted equal treatment and permitted to supply the market. Relatedly, the industry is aware that the Indian Cabinet approved the Pension Fund Regulatory Development Authority (PFRDA) Bill on November 16, 2012. Like the Insurance Bill, the PFRDA Bill has been tabled in the Lok Sabha and a vote on the Bill is expected sometime later this year.

      5. Ongoing Engagement with Indian Counterparts to Promote Canada's Financial Services Sector

      The Canadian life and health insurance industry strongly supports the Canadian government on its efforts to engage both economically and politically with India. In addition, the industry has been an active participant in private sector delegations
      attached to the Prime Minister's official visits to India in November 2009 and again in 2012 and as a sponsor for activities surrounding Canada's Year of India in 2011.

      Frequent and regular engagement should be a cornerstone in Canada's efforts to strengthen its bilateral relationship with India. Competitors to Canada like the US and the EU hold regular bilateral summits with India, bringing together senior government officials from both sides. Regular engagement by Canadian elected and senior governmental officials with their India counterparts will enhance mutual trust and deepen the political and economic ties between both countries. It also provides an opportunity to showcase the strengths and opportunities that each country can bring to the relationship. For example, Canada has been a world leader in providing technical support for countries that are developing their financial system and regulation. The work of the Toronto Centre for leadership in financial supervision as well as Canada’s regulators, such as OSFI, are internationally recognized and respected for their efforts in promoting international best practices and raising the overall quality of financial sector regulation.

      Having a regular dialogue at the political level will complement the work already being done by the Canadian business community through, for example, the Canada-India Business Council to raise Canada's profile and address issues of concern. Against our key competitors and as a trade dependent country, Canada must continue to view a strong political dialogue with India as being both necessary and reflective of that country's growing economic size and importance.


      · That the Government of Canada remains committed to bringing the Canada-India Comprehensive Economic and Partnership Agreement to a swift conclusion.

      · That, where appropriate, the Government of Canada work in concert with the Canadian life and health insurance industry to promote the benefits for India of adopting the measures contained in its Insurance Laws (Amendment) Bill.
        · In particular, that the Government of Canada promote the benefits to India of relaxing its foreign ownership limit in insurance by raising the equity cap from 26 to 49 per cent.
          · That the Government of Canada continues to press relevant Indian counterparts on the value of concluding the Canada-India Foreign Investment Protection Agreement (FIPA).

          · That the Government of Canada have regular engagement with India at the highest political and governmental level in order to raise Canada's profile and strengthen bilateral political and economic ties.

          · That the federal government continues a high-level and sustained effort to advocate on behalf of the insurance sector in India.

          6. Conclusion

          On behalf of the Canadian life and health insurance industry, the CLHIA appreciates the opportunity to submit these comments to the Standing Committee on International Trade on its study of the Canada-India Comprehensive Economic and Partnership Agreement. Please do not hesitate to contact us should you wish to discuss the contents of this submission or if you have any questions.