Insurance: Nirmala Sitharaman introduces Bill in Rajya Sabha to allow 74% FDI

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New Delhi: Finance Minister Nirmala Sitharaman on March 15 introduced a Bill in Rajya Sabha that seeks to amend the Insurance Act to pave the way for 74% foreign direct investment (FDI) in the sector.

The Union Cabinet on March 10 had given its nod for amendments in the Insurance Amendment Bill 2021. Sitharaman introduced the Bill for amendments in the Insurance Act, 1938.  Currently, the permissible FDI limit in life and general insurance stands at 49% with ownership and management control with Indians.

Sitharaman presenting the Union Budget for 2021-22 had said, “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.”

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 specified percentage of profits being retained as a general reserve.

She had 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%. Increase in FDI will help improve life insurance penetration in the country. Life insurance premium as a percentage of GDP is 3.6% in the country, 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 has 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.