insurance sector
Ever since the Union Finance Minister has talked about FDI i.e. Foreign Direct Investment in the insurance sector during the budget. Since then many speculations are being made regarding this. Now news is also coming that this proposal presented by Nirmala Sitharaman may get approval in Friday’s cabinet meeting. After this, the FDI limit in the insurance sector can be increased from 74% to 100%. Let us know what it means to make 100 percent FDI in the insurance sector and what will be its impact on the insurance sector.
India is preparing to completely open the doors for foreign investment in the insurance sector. On February 1, the Finance Minister had indicated in the Lok Sabha that the government was considering increasing the FDI limit to 100%. After this, after several review meetings held between the Finance Ministry and the concerned departments, this proposal will now be placed before the Cabinet on Friday. As soon as the approval is received, the process of amending the Insurance Act, 1938 will begin, so that this decision can get a legal basis.
Main conditions of 100% FDI
The government has already clarified about the conditions of FDI, in which it has been clearly stated that 100% FDI will be available only to those insurance companies which will invest their collected premiums entirely in India. Existing rules related to foreign investment are also being simplified, so that it becomes easier for global insurance companies to enter or expand in India. The government estimates that the Indian insurance industry could achieve an average annual growth of 7.1% over the next five years, which is faster than many countries and other emerging economies. Allowing 100% FDI will bring in long-term foreign capital, accelerate the development of technology and new products and increase competition in the market. This will make the premium structure more transparent and customers will get better and more options. According to Bloomberg report, the government is considering this step as an important step for the growth and modernization of the insurance sector.
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What will change?
Till now, for a foreign insurance company to start operations in India, it had to give 26% stake to an Indian partner. This obligation will be removed in the new system. Finance Minister Nirmala Sitharaman has said that this is an “enabling provision”, through which foreign companies will be able to invest freely and expand their operations. This will make it easier for new companies coming into this sector. With this, insurance coverage will increase and new employment opportunities will also be created.
There are currently 57 insurance companies operating in India. There are 24 life insurance and 34 non-life insurance companies. Despite this, insurance coverage is only 3.7%. Life insurance coverage stood at 2.8% and non-life 0.9% in FY24. The government believes that to overcome this deficiency, it is necessary to give greater opportunity to foreign capital and expertise.
How will the reforms proceed?
The Finance Ministry has already released the draft of the Indian Insurance Companies Amendment Rules, 2025. However, the Insurance Laws Bill, 2024 is yet to be introduced in Parliament. This process will progress rapidly once the Cabinet approves it. By the end of 2024, the stake of foreign investors was 47.82% in life insurance companies, 40.8% in private sector general insurance companies and 29.46% in standalone health insurers. The government estimates that after the implementation of 100% FDI, this investment will increase further and will remain stable for a long time.