The Government of India has further reviewed the extant FDI policy on Insurance sector and has made the following amendments under the Consolidated FDI Policy of 2020, as amended from time to time (“FDI Policy”):
Sector / Activity | New Entry | Old Entry |
Insurance Company | 74% -Automatic | 49% – Automatic |
Intermediaries or Insurance Intermediaries including insurance brokers, re-insurance brokers, insurance consultants, corporate agents, third party administrator, Surveyors and Loss Assessors and such other entities, as may be notified by the Insurance Regulatory and Development Authority of India from time to time. | 100% – Automatic | 100% – Automatic |
Among other changes some of them are provided below:
- No Indian Insurance company shall allow the aggregate holdings by way of total foreign investment in its equity shares by foreign investors, including portfolio investors, to exceed 74% of the paid-up equity capital of such Indian Insurance company;
- Foreign investment in this sector shall be subject to compliance with the provisions of the Insurance Act, 1938 and the condition that Companies receiving FDI shall obtain necessary license /approval from the Insurance Regulatory & Development Authority of India for undertaking insurance and related activities;
- Any increase in foreign investment in an Indian Insurance company shall be in accordance with the pricing guidelines specified by Reserve Bank of India under the Foreign Exchange Management Act (“FEMA”) Regulations;
- The foreign equity investment cap of 100 percent shall apply on the same terms as above to insurance brokers, re-insurance brokers, insurance consultants, corporate agents, third party administrator, Surveyors and Loss Assessors and such other entities, as may be notified by the Insurance Regulatory and Development Authority of India from time to time. The composition of the Board of Directors and key management persons of Intermediaries or Insurance Intermediaries shall be as specified by the concerned regulator from time to time.
The move of increasing FDI in Insurance sector to 74% comes very shortly after its previous amendment to increase FDI in insurance sector to 49% from 26% in March 2020. Even though previous amendment was towards liberalising FDI from 26% to 49%, it still created restrictions and limitation for raising funds in terms of maintaining solvency ratio, providing exit to Indian promoters and raising FDI as majority control still remained with Indian promoter / stakeholders. With the above amendment in place, FDI in insurance sector may get its much-required boost and overall growth.
A higher FDI limit will help insurance companies to access foreign capital to meet their growth requirements as insurance is a capital-intensive business. As an insurance company sells more policies and collects premiums from policy holders, it needs higher capital to ensure that it is able to meet the future claims, this in turn drives growth of overall insurance sector.
For detailed discussion on the above subject, please feel free to connect at contact@devadhaantu.in
