Union govt proposes increase in FDI limit in insurance sector to 100%

“In this regard, a comprehensive review of the legislative framework governing the sector has been conducted in consultation with the Insurance Regulatory and Development Authority (IRDAI) and the industry. The proposal includes raising the FDI limit in Indian insurance companies from 74 per cent to 100 per cent, and enabling an insurer to carry on one or more classes of insurance business, as well as activities related or incidental to insurance,” an office memorandum dated November 26 stated.

The proposal further mentioned that the requirement of Net Owned Funds for foreign reinsurers is also proposed to be reduced from Rs 5,000 crore to Rs 1,000 crore. Additionally, IRDAI is being empowered to specify lower entry capital (not less than Rs 50 crore) for underserved or unserved segments on a special-case basis.

Notably, the Chairman of the Insurance Regulatory and Development Authority of India (IRDAI), Debasish Panda, had earlier this month also advocated for 100 per cent foreign direct investment in the sector, citing the need for significant capital to meet the ambitious “Insurance for All by 2047” vision.

The sector regulator is making efforts to attract more capital to this capital-intensive industry. According to the IRDAI Chairman, the insurance sector needs to infuse approximately ₹50,000 crore annually to double insurance penetration in the country.

Insurance penetration refers to the ratio of insurance premiums written in a particular year to the gross domestic product (GDP).

As per the Economic Survey 2023-24, overall insurance penetration in the country moderated slightly to 4 per cent in FY23, from 4.2 per cent in FY22. During the same period, insurance penetration in the life insurance segment declined from 3.2 per cent in FY22 to 3 per cent in FY23, while it remained flat at 1 per cent for the non-life insurance segment.

At present, there are 25 life insurance companies, including the state-run Life Insurance Corporation of India (LIC), and 34 general insurers in the country.