FDI in insurance to be hiked to 100%, paving way for investments, entry of foreign giants | Business News
Union Finance Minister Nirmala Sitharaman Saturday announced a significant hike in foreign direct investment (FDI) in the insurance sector — from 74% to 100% — paving the way for the entry of global insurance giants, substantial foreign investments and tough competition in the Indian market.
The government will hopes this major reform boosts insurance penetration in the country, which, as per an IRDAI report, was at 3.7% in 2023-24. The global insurance penetration at the same time was 7%.
With the 100% FDI, foreign insurers will have full autonomy to operate in India, bringing in sophisticated risk management practices, advanced technology and innovative products, say experts.
Foreign investments will also provide much-needed capital to the Indian insurance sector, enabling insurers to offer better products and services.
Of the world’s top 25 insurance firms, as many as 20 are not present in India now. This move is expected to attract them to the country.
There is also a chance that foreign companies in existing Indian joint ventures may exit or buy out their Indian partners and form their own fully-owned ventures in India. “We could see India moving towards a future with 1,000 insurers in the next decade,” said Tapan Singhel, MD & CEO, Bajaj Allianz General Insurance.
To enhance the FDI limit, the government will have to bring amendments to the Insurance Act 1938, the Life Insurance Corporation Act 1956, and the Insurance Regulatory and Development Authority Act 1999. Sitharaman told reporters that the draft Bill will be tabled in Parliament soon.
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Insurance shares remained subdued on the exchanges with ICICI Prudential down by 1.26% and SBI Life by 1.80% during the day.
The inflow of foreign capital is expected to create new job opportunities and potentially lower premiums for consumers in the insurance sector. As of March 2024, the total number of registered insurers and reinsurers was 73. There were 26 life insurers, 25 general insurers, and seven standalone health insurers operating in India.
According to Balachander Sekhar, founder and CEO of RenewBuy, the move to allow 100% FDI can trigger a paradigm shift to the sector. Many international insurers can now enter the Indian market which will drive Indian insurers to adopt global best practices in product and processes, innovation as well as cutting-edge technologies. This will ultimately help consumers access the best products and services, he said.
The insurance sector received the highest FDI in the services sector during the April–September period of FY25, according to the 2024-25 Economic Survey. The segment accounted for more than 62% of the $5.7-billion equity inflows into the services sector.
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Alok Rungta, MD & CEO of Future Generali India Life Insurance, said the insurance sector has long advocated for higher capital infusion and policyholder-centric reforms. This will attract global investors, drive innovation and foster greater financial inclusion by making insurance solutions more accessible and affordable, he said.
Insurance is a capital-intensive industry, and any move to enhance capital access is undoubtedly beneficial. “This could attract global insurers seeking greater control on the Indian operations. There are numerous other benefits from greater international participation, particularly the access to latest tech and new products,” said Shanai Ghosh, MD & CEO, Zuno General Insurance.
