NEW DELHI: The much-awaited Insurance (Amendment) Bill to allow 100% foreign direct investment (FDI) in the sector may see the light of the day in the Budget session of Parliament. The proposed major amendment follows the tweaking of the Insurance Act in 2021, when the FDI limit was raised from 49% to 74%.
The current Bill was to be introduced in the Winter session but was deferred. According to sources, the latest amendment will not only let foreign insurers and other funds with financial muscle to operate independently in India, but also include a clutch of other reforms like allowing insurers to offer life and non-life policies via a single entity under a composite licence.
Another change is the facility for insurance agents to sell products from multiple companies. Finance minister Nirmala Sitharaman is likely to make an announcement about the Bill in her Budget speech.
The department of financial services released a brief consultation paper on the Bill in December 2024. The department said the proposed amendments aimed to ensure accessibility and affordability of insurance for citizens, foster expansion and development of the insurance industry, and streamline business processes. The sector requires capital inflows to grow and raise the insurance penetration level in the country.
The proposal further mentioned that the requirement of net owned funds for foreign re-insurers is also proposed to be reduced from Rs 5,000 crore to Rs 1,000 crore. It also proposed to empower the Insurance Regulatory and Development Authority to specify lower entry capital (not less than Rs 50 crore) for underserved or unserved segments on a special-case basis. Micro insurance firms likely to benefit if capital requirement is lowered.
For composite licence, however, the minimum capital threshold may be higher than for separate licences for life and non-life insurance. “The proposed FDI increase in insurance and other amendments in insurance laws may be taken up in the Budget,” an official said.
Insurance penetration was just 4.2% in India in 2021 while the global average was 7%. Moreover, the Indian insurance sector is heavily tilted towards the life insurance segment which has a share of 76%. Globally, the share of the life insurance business in total premiums was 43.7% and the share of non-life insurance premiums was 56.3% in 2021.
The domestic insurance market comprises as many as two dozen life insurers, 26 general insurers, and six standalone health insurers. The lone re-insurer is General Insurance Corporation. It is believed many players have diversification plans while some of the foreign players want to sever ties with local units and re-enter the sector on their own.
Source: The Financial Express