FinMin for broadening definition of insurance

DIPP to review definition to include brokers,re-insurers in sector

Bringing a much needed clarity to the sector,the government has begun a review of the definition of insurance that could help companies in related activities such as insurance broking and intermediaries bring in foreign direct investment through the automatic route.

The finance ministry has asked the department of industrial policy and promotion DIPP,to review the definition,two officials familiar with the development said.

The current definition of insurance in the FDI regulations is very narrow and activities like intermediaries and brokers are not included. In contrast,the insurance regulator IRDA considers these as a part of the insurance sector, a senior official said.

Under existing guidelines,foreign direct investment up to 26 per cent is permitted in the insurance sector. But the DIPP the nodal agency for forming policies on FDI considers only life and general insurance companies as part of the insurance sector. In contrast,the IRDA includes intermediaries,insurance brokers and re-insurers as a part of the sector.

As a result,only life and general insurance firms can get in FDI up to 26 per cent through the automatic route. Other related firms such as insurance brokers and intermediaries have to seek clearance from the Foreign Investment and Promotion Board.

For example,the FIPB in January this year approved a proposal of Mahindra Insurance Brokers Ltd and Mahindra Financial Services to bring in foreign equity through FDI of Rs 80.41 crore.

Experts point out that a clarity in definition would make the foreign investment regime for the sector simpler and more transparent. The FIPB should make necessary clarifications to enable firms in related activities such as insurance broking to get FDI through the automatic route up to the sectoral limit. At present,such companies have to take approval from the FIPB, said Sidharrth Shankar,partner, J Sagar Associates.

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Significantly,the move comes at a time when the government is also trying to increase the overall FDI cap for the insurance sector to 49 per cent. The finance ministry is likely to table the long pending Insurance Laws Amendment Bill in the current session of Parliament.

Experts believe that if the DIPP issues a clarification on the issue,it will also impact the Bill and the government may have to revise the definition of insurance in the proposed legislation as well.