The Union Cabinet on Friday approved 100 per cent foreign direct investment (FDI) in the insurance sector, a move that was welcomed by industry as it would help attract more capital and global expertise, while boosting insurance coverage in the country.
Illustration: Dominic Xavier/Rediff
A bill to amend the insurance law is likely to be tabled on Monday in Parliament, whose winter session is slated to conclude on December 19.
The Centre had proposed to raise the 74 per cent FDI limit in insurance to 100 per cent in the Union Budget 2025-26.
As of 2023, general-insurance penetration in India was relatively low, at 1 per cent of gross domestic product, as against a global average of 4.2 per cent.
The sector has so far received Rs 82,000 crore through FDI.
“To ensure uninterrupted service and support to policyholders and to promote ease of doing business, a one-time registration of insurance intermediaries has been proposed.
“Further, the limit for seeking regulatory approval for transferring shares of paidup equity capital is being raised from the current 1 per cent to 5 per cent,” the source said.
As part of a comprehensive reform, the Insurance Act, 1938, as well as the Life Insurance Corporation (LIC) Act, 1956, and the Insurance Regulatory and Development Authority Act, 1999, will be amended.
The amendments to the LIC Act propose empowering its board to take operational decisions, such as branch expansion and recruitment.
“Increasing the FDI limit to 100 percent can serve as a strong catalyst for the sector, said Sharad Mathur, MD and CEO, Universal Sompo General Insurance.
Greater capital inflows will not only support expansion plans, but also help investments in advanced risk-assessment models and more efficient claims-management systems, he reckoned, adding this will deepen market penetration, particularly in tier-3 cities where insurance adoption remains low.
To enhance insurance awareness and protecting policyholders, a fund for policyholders’ education and protection has been proposed.
The Insurance Regulatory and Development Authority of India (Irdai) will get the powers of disgorging wrongful gains made by an insurer or intermediary, the source said, adding that the requirement of net-owned funds for foreign re-insurers was proposed to be reduced from Rs 5,000 crore to Rs 1,000 crore.
“To improve regulatory governance, a provision for standard operating procedure for regulation making is being introduced in the Irdai Act. To make levying penalties transparent and rational, factors in levying penalties are also being introduced,” the source added.
“This reform brings clarity, confidence and long term capital into a growing sector that plays a central role in strengthening financial security,” said Sarbvir Singh, Joint Group CEO, PB Fintech.
“With deeper capital pools and a more diverse set of players, the industry can reach new customer segments and drive meaningful growth in insurance penetration, supporting India’s goal of comprehensive financial protection for all,” he added.
