The government of India is planning to bring transformative reforms in the insurance sector of the country by allowing 100 per cent Foreign Direct Investment (FDI) in insurance companies. This proposal, which is a part of the upcoming Insurance Amendment Bill, is expected to be tabled during the winter session of Parliament, according to a report by The Times of India. If the Bill is enacted, the reforms it promises are expected to reshape India’s insurance landscape. It aims to encourage global insurers to fully own and operate businesses in India. Currently, the FDI cap in the sector stands at 74 per cent which covers life, general, and health insurance.
India’s insurance sector presently consists of 24 life insurers, 26 general insurers, 6 standalone health insurers, and one state-owned reinsurer - General Insurance Corporation.
Key Feature of Insurance Amendment Bill
This Bill seeks to bring the following three changes in the insurance sector:
1) By allowing 100 per cent FDI, the government plans to attract well-capitalised foreign insurers to this capital-intensive sector. These companies are expected to bring advanced technology modern practices, and innovative products.
2) The reform will be particularly beneficial for individual agents who will able to sell policies from multiple insurers. Currently, they are under the restriction of associating with only one life and one general insurer.
3) It is also expected to ease solvency norms and streamline requirements for company directors, potentially freeing up capital for insurers to expand their operations.
What Does It Mean For Customers?
The proposed changes under the Bill are expected to increase insurance penetration in India, which currently is around only 4 per cent.
A higher FDI limit and the coming of global players in India’s insurance sector will open the gateway for a wide range of products for customers tailored to their needs.
Allowing agents to offer policies from multiple insurers is expected to simplify the buying process and promote competition in the market. Some speculate that this could lead to better pricing and more transparent offerings for the customers.
Moreover, with the Insurance Regulatory and Development Authority of India (IRDAI) considering composite licenses for insurers, companies like the Life Insurance Corporation of India (LIC) could venture into new markets such as health insurance, further diversifying consumer options.
Opportunities and Challenges
Sumit Bohra, President of the Insurance Brokers Association of India (IBAI) views this move as a double-edged sword. He says, “While opening the insurance sector to 100 per cent FDI introduces promising opportunities, we must also consider the substantial challenges it poses. Global players could bring better products, increased capital, and advanced technology. However, the complexities of navigation domestic and international regulations, coupled with the potential market saturation, could stifle smaller domestic insurers.”
“Without robust regulatory frameworks, there’s a risk of monopolistic practices and profit repatriation, which may not directly benefit the local economy,” he adds.
Pavanjit Singh Dhingra, Joint MD of Prudent Insurance Brokers says a balanced approach will be the key. “Welcoming global insurance giants could enhance capital, bring advanced technology, and drive competition. However, India’s goal of achieving ‘Insurance for All’ by 2047 requires an ecosystem of at least 80-100 companies. For India, 100 per cent FDI, accompanied by a specialised insurance approach, could accelerate growth,” he states.
He also notes that implementing perpetual licenses for intermediaries like brokers would add much-needed continuity, aligning India’s goal to make insurance accessible to all by 2047 with a supportive, diversified insurance ecosystem.
The government's reform aims to strike a balance between insurance products and market diversity. Though foreign insurers will come with global expertise, local players must also step up to meet consumer needs accordingly. Amid the whole picture, Irdai’s oversight over the market will play a pivotal role in ensuring that FDI enhances consumer benefits without marginalising domestic insurers or leading to monopolistic practices.
