This is a story about a hiatus between the letter of the law and the spirit of the law; an example of how loopholes in law can be exploited to defeat its spirit. This is an account of how Berkshire Hathaway, one of the largest insurance companies in the world headed by well-known investor Warren Buffet, has been able to make a back-door entry into India’s insurance industry, bypassing the limits or caps on foreign direct investment (FDI) that have been imposed by the government.

The background: Towards the end of 1998, the Bharatiya Janata Party was racked with internal dissension on the issue of allowing foreign companies to enter the insurance business in the country. Insurance was the last segment of India’s financial sector that had remained barred to foreign capital.
On October 22, 1998, a high-powered group of ministers led Jaswant Singh (then deputy chairman of the Planning Commission) arrived at a “unanimous” decision that foreign companies would be allowed to hold up to 26 per cent of the equity capital of privately-controlled insurance companies in the country. This was an important recommendation of a Parliament committee headed by Congress MP Murli Deora.
A day before the group of ministers met, the then finance minister, Yashwant Sinha, had stated that legislation would be introduced in the winter session of Parliament in November 1998 to set up and empower a statutory Insurance Regulatory and Development Authority (IRDA) to oversee the removal of the government’s monopoly on the insurance business.
A section within the NDA government was of the view that after the May 2008 nuclear tests, a “positive signal” should be sent to foreign investors by allowing them to enter the insurance business. The Indian government, first under Jawaharlal Nehru and then under Indira Gandhi, had nationalised the life insurance business in 1956 and the general insurance business in 1972.
The thinking in sections within both the BJP and the Congress was that the time had come to do away with the monopoly of two monolithic organisations, namely, the Life Insurance Corporation and the General Insurance Corporation which has four subsidiaries: Oriental Insurance, National Insurance, New India Assurance and United India Insurance.
In August 1997, the I.K. Gujral government withdrew a bill to amend insurance laws after strident opposition, not only from the Left parties (which were supporting the United Front government then) but also from the BJP which said that it was not averse to Indian companies entering the insurance business but was not favourably inclined towards foreign companies getting into this industry.
In December 1998, during a heated session of Parliament, arch political opponents from the Left and the Right came together to oppose the Insurance Bill causing considerable embarrassment to the government since, by then, the Union Cabinet had resolved to allow foreign companies to hold up to 26 per cent shares in Indian insurance companies. The NDA government had hoped to get the insurance laws amended during the 1999 Budget session, but the government fell before this could happen.
The bill was finally adopted by both Houses of Parliament in the winter session of 1999. It was the first and only major economic decision taken by the Atal Behari Vajpayee government which had the approval of the Congress Party.
Fast-forward to the present. Berkshire India Pvt. Ltd. is incorporated as a majority owned non-direct subsidiary of Berkshire Hathaway Inc., incorporated in India, with 100 per cent FDI in paid-up capital. It is a licensed corporate agent of Bajaj Allianz General Insurance Company Limited (BAGICL) and sells BAGICL’s products directly to retail consumers through the internet and through call centres.
In India, there are three kinds of insurance intermediaries: brokers, agents and TPAs (third party assistants). The second category has a sub-category, namely, corporate agents (that are distinct from individual agents). Berkshire India falls into this sub-category. The FDI limit in insurance companies, intermediaries and TPAs is 26 per cent. By this measure, the FDI cap for corporate agents should be the same. However, as per clauses 2(f) and 2(k) of the IRDA (Licensing of Corporate Agents) Regulations, 2002, nothing has been mentioned with respect to FDI limits applicable to the sub-category of corporate agents.
Any company incorporated under the Indian Companies Act, 1956, can act as a corporate agent. But unlike Clause 10 of the IRDA (Insurance Broker) Regulations, 2002, under which there is a restriction both on the amount of capital as well as the proportion of FDI, there is no such clause in the regulation of corporate agents. It is here that the loophole in the law lies.
Berkshire India was formed with BHG Structured Settlements Inc. (based in Missouri, US), owning close to 80 per cent of the company’s paid-up share capital. Allianz SE (based in Munich, Germany) owns 20 per cent. In other words, Berkshire India — despite its name — is not an Indian company.
The question is whether the FDI cap rule should be different for one class of intermediaries when there is a 26 per cent limit for other intermediaries like brokers and TPAs. Since Berkshire Hathaway cannot operate in India as a full-fledged foreign entity, it has entered the Indian market as a corporate agent.
Berkshire India had advertised in all major newspapers that anyone who bought a policy from them would get to meet Warren Buffet during his visit to India, on a first-come-first-served basis. It was alleged that this advertisement did not match the disclosure norms of Regulation 2.2 of the IRDA and was tantamount to inducing customers, which is not allowed. Complaints were filed with the IRDA, but none yielded any response from the insurance industry regulator.
The then IRDA chairman came from Hyderabad to Delhi to attend the function with Warren Buffet despite the controversy surrounding the Berkshire advertisement. What is noteworthy is that Berkshire India filed an application for a corporate agency licence on February 19, 2011, and this was granted on February 25, that is, a mere five days later which included a weekend. Normally such licences take months to be approved.
But well, Berkshire Hathaway and Warren Buffet are special.

The writer is an educator and commentator