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The cabinet on March 10 approved an amendment to the Insurance Act paving the way for 74% foreign direct investment (FDI) limit. It was proposed in the Budget speech to increase the FDI limit in the insurance sector to 74%, a move aimed at attracting greater overseas capital inflows to help enhance insurance penetration in the country. The move will also provide a push to the insurance industry to scale up digital and infrastructure capabilities.
In the first paperless Union Budget, Finance Minister Nirmala Sitharaman had said under the new structure, the majority of directors on the board and key management persons would be resident Indians, with at least 50% of directors being independent directors, and a specified percentage of profits being retained as a general reserve.
“I propose to amend the Insurance Act, 1938 to increase the permissible FDI limit from 49% to 74% in insurance companies and allow foreign ownership and control with safeguards,” she said while presenting the Budget 2021-22.
She also said that for investor protection, an investor charter would be introduced as a right of all financial investors across all financial products.
It was in 2015 when the government hiked the FDI cap in the insurance sector from 26% to 49%.
Life insurance penetration in the country is 3.6% of the GDP, way below the global average of 7.13%, and in the case of general insurance, it is even worse at 0.94% of GDP, as against the world average of 2.88%.
The government had earlier allowed 100% foreign direct investment in insurance intermediaries. Intermediary services include insurance brokers, reinsurance brokers, insurance consultants, corporate agents, third-party administrators, surveyors and loss assessors.