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Indians throng a street of a wholesale market on World Population Day in New Delhi, India, Friday, July 11, 2014.Saurabh Das/The Associated Press

The new government in India is planning to allow more foreign investment in the insurance market, an effort to boost the industry that could lead to opportunities for some of Canada's largest players.

The government plans to increase the cap on foreign investment to 49 per cent from 26 per cent. This means insurers still won't be able to take total control of the companies, but could invest deeper in the region alongside local partners.

India's insurance market has faced uncertainty in recent years as regulators repeatedly introduced changes aiming to improve customer protection and pricing and consumers have shown little interest in products that aren't legally required. The country's slowing GDP growth also added pressure, as did high capital requirements for insurers.

But the industry is also full of potential as the middle class population grows, along with their disposable incomes and savings. Customers are demanding more customized products, according to an Ernst & Young report. "The insurance market has a considerable amount of latent potential, given the fact that the Indian economy is expected to do well in the coming decades, leading to increases in per-capita incomes and awareness," the report said.

Though India's insurance amendment proposal still needs to be approved by Parliament, the idea was cheered by many international insurance companies, including some Canadian insurers who already have an interest in the region.

Sun Life Financial Inc. has a business in India through a joint venture with Aditya Birla Group called the Birla Sun Life Insurance Company Ltd. The business was profitable last year, but saw large declines in insurance sales that dragged down the Sun Life's overall performance in Asia. The company attributed this decline to the regulatory changes that rocked the whole industry, though it said in an annual report that the region has major potential. The insurance business in India is expected to grow over time.

"We are glad to hear that the new government supports an increase in foreign ownership in insurance," said Kevin Strain, president of Sun Life Financial Asia, adding he would welcome more details.

"As and when the rules change, we will act on them. But for now, our focus is clear – we have a strong partner in India and we are focused on building the business together," Mr. Strain said.

One of the most enthusiastic Canadian participants in India's insurance market has been Fairfax Financial Holdings Ltd., which has a 26 per cent interest in general insurer ICICI Lombard GIC Ltd.. The company is the number one private, non-life insurance company in India, according to Farifax chief executive Prem Watsa's shareholder letter in March. ICICI Lombard has $1.2-billion in gross premiums and offers car, travel and health insurance, among other products.

Fairfax couldn't immediately comment on whether it would invest more in the market, but Mr. Watsa has expressed enthusiasm for the country's leadership and the business opportunities that could follow. This year's electoral victory of prime minister Narendra Modi, who promised to replace slowing growth with economy-building and development, prompted Fairfax to launch a publicly listed investment fund that would focus on public and private Indian companies.

Some companies would rather wait for the right moment to jump in the market. Manulife Financial Corp. said it's too soon to comment on the implications of the change, since the legislation has yet to be drafted. But the company's chief executive has given hints on his intentions in the region before.

Donald Guloien, Manulife's CEO, said at a Bank of Nova Scotia conference in September last year that he's not in a rush to move into India. He said Manulife should have a presence in the region 20 years from now, but not necessarily within the next two years. Mr. Guloien added that he would prefer a 50-50 partnership, such as the ones Manulife has in China, to the 26 per cent ownership cap currently in place.

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