Finance Ministry proposes 100% FDI in insurance sector
What's the story
India's Ministry of Finance has proposed to raise the foreign direct investment (FDI) limit in domestic insurance companies from 74% to 100%. The proposal has led to a surge in insurance stocks, with major players like The New India Assurance Company, LIC and General Insurance Corporation of India recording gains up to 15% over the last week. Today, all general insurance stocks are trading positively with gains up to 2%.
Service expansion
Proposed changes to insurance service provisions
The Finance Ministry's proposal also entails a provision for insurers to provide all kinds of insurance services. If approved, this would allow companies to provide life, general, and health insurance policies under one entity. Currently, life insurers cannot sell health insurance and vice versa. This proposed amendment aims at enhancing policyholders' interests and financial security while allowing more players to enter the market.
Capital requirements
Reduction in minimum net-owned funds for foreign re-insurers
The Finance Ministry has also recommended lowering the minimum net-owned funds for foreign re-insurers from ₹5,000 crore to ₹1,000 crore. It has also proposed to allow the Insurance Regulatory and Development Authority of India (IRDAI) to prescribe lower capital requirements (at least ₹50 crore) for companies catering to under-served areas on a case-to-case basis. These changes are aimed at boosting economic growth, employment generation, while improving efficiencies in the insurance sector.
Expert insights
Industry experts weigh in on proposed FDI increase
Former Member of IRDAI, Nilesh Sathe, told CNBC-TV18 that the proposed FDI increase could draw interest from global insurance players and result in more market entries and acquisitions in Indian insurers. He said several global players like UnitedHealth and Berkshire Hathaway have been waiting for this development to enter the domestic market. "The existing players are keen on increasing their stake to 100%," he added.
Regulatory perspective
IRDAI Chairman's views on proposed FDI hike
IRDAI Chairman Debasish Panda had earlier said that permitting 100% FDI in insurance and a unified license will allow foreign players to independently plan their businesses, bring global expertise, enhance capacity and technology. He had expressed concerns about a 'crowding out effect' in the insurance sector if it remains solely dependent on domestic capital. This highlights the potential benefits and challenges of the proposed FDI increase in India's insurance sector.