India's 100% FDI insurance law to be effective from tomorrow
What's the story
The Indian government has announced that the new insurance law, which permits 100% foreign direct investment (FDI), will be implemented from tomorrow. The decision was confirmed by a notification from the Finance Ministry. The 'Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill' was passed by Parliament during the recent winter session and has now received President Droupadi Murmu's assent.
Citizenship requirement
Major shift in legislation
The new law not only increases the FDI limit in the insurance sector to 100% but also mandates that the top management of an insurance company (chairman, managing director or CEO) must be an Indian citizen. The legislation also allows for mergers between non-insurance and insurance companies. This is a major shift from the previous FDI limits which were gradually increased over time.
Gradual increase
FDI limit raised from 26% to 100% over the years
The FDI limit in the insurance sector has been gradually raised from 26% to 49% in 2015, then to 74% in 2021, and now to a full 100%. The number of insurers has also grown from 53 in 2014 to the current total of 74. Finance Minister Nirmala Sitharaman had previously noted that insurance penetration improved from 3.3% in FY15 to the current level of about 3.8%.
Business facilitation
Other key provisions of the new law
The new law seeks to promote 'ease of doing business' for intermediaries by introducing a one-time licensing provision and suspension of licenses instead of outright cancellation. For insurers, the limit for prior regulatory approval for share capital transfer has been increased from 1% to 5%. The Net Owned Fund requirement for Foreign Reinsurance Branches has been reduced from ₹5,000 crore to ₹1,000 crore.
Autonomy granted
Protecting policyholders' interests
The Life Insurance Corporation of India (LIC) has been given the autonomy to open zonal offices across India and align its foreign offices with local laws. To protect policyholders' interests, a dedicated fund called the Policyholders's Education and Protection Fund will be set up to create awareness about insurance. The data of policyholders will now have to be collected and protected as per DPDP Act 2023.
Governance enhancement
Strengthening regulatory governance
The new law also strengthens regulatory governance by introducing a standard operating procedure for regulation making and a consultative process. The Insurance Regulatory and Development Authority of India (IRDAI) has been given the power to disgorge wrongful gains from insurers and intermediaries. Penalties are being rationalized, with factors for imposition of penalties being introduced under this new legislation.