Analyse the impact of Government of India's decision to increase foreign direct investment in the insurance sector from 26% to 49% by using Michael Porter's Force 'threat of new entry'.

Michael Porter's five forces model is an analysis tool that uses five forces to determine the profitability of an industry and shape a firm's competitive strategy. As per Michael Porter, profitable markets that yield high returns attract new firms. This results in many new entrants, which eventually decreases profitability for all firms in the industry. This is called the 'threat of new entry'. The Government of India has decided to increase foreign direct investment in the Insurance sector from 26% to 49%. As far as Michael Porter's five forces model applicability for the threat from new entrants is concerned, India is a country having very low insurance penetration (3%) and this market share is further declining due to lack of satisfactory service on the part of existing players in the market. Reports reveal that there is a need to infuse capital in this sector. Therefore, low penetration indicates the threat of new entrants will not have much adverse effect on the market share of the present players, as 97% market is still uninsured. Secondly, private players in insurance are also facing the problem of meeting Capital Adequacy norms. Increased FDI limit will strengthen the capital base of existing private sector companies entering into joint ventures with foreign players. This will lead to offering of new products that will attract a larger population to come under insurance cover. Though FDI in insurance will be a threat for the public sector companies, this will lead to a healthy competition leading to the introduction of new products which in turn lead to an increase in their existing customer base.