Follow Us:
Saturday, May 21, 2022

Opening move

Increasing FDI limit in insurance will facilitate greater investment, bring in technical know-how, lower costs.

By: Editorial |
Updated: March 12, 2021 8:15:45 am
Pritzker Prize 2021, Anne Lacaton, Jean-Philippe Vassal, Pritzker Prize 2021 architecture award, indian express editorialIt’s this vision of architecture that was validated when French architect duo, Anne Lacaton and Jean-Philippe Vassal, were honoured with the 2021 Pritzker Prize this week.

Weeks after Finance Minister Nirmala Sitharaman proposed to increase the foreign direct investment limit in the insurance sector in her budget speech, the Union cabinet on Wednesday approved a proposal to amend the Insurance Act 1938 for raising the FDI limit to 74 per cent, from the current 49 per cent. A bill to amend the Act will be introduced in the ongoing budget session of Parliament. Coming at a time of continuing protests by farmers over the government’s new farm laws, the government’s decision to push ahead underlines its commitment to carry through the reforms it has committed to.

Insurance penetration in India continues to lag far behind other Asian economies, despite the presence of a large number of insurance companies — there are 24 life insurance companies and 34 non-life insurance companies in the country. As per the Economic Survey 2020-21, while insurance penetration (estimated as a percentage of insurance premium to GDP) in India has risen from 2.71 in 2001 to 3.76 in 2019, it is far lower than in countries like Malaysia (4.72), Thailand (4.99) and China (4.3). A closer look at the data shows that penetration of life insurance in India stands at 2.82 (it has declined from 3.1 in 2013), while that of non-life was estimated at 0.94 per cent in 2019. In comparison, the global insurance penetration stands at 3.35 per cent in the life segment, and 3.88 in the non-life segment. Similarly, even as the insurance density (the ratio of premium to population) in India has risen from $11.5 in 2001 to $78 in 2019, it is way lower than other Asian economies — it stood at at $536 in Malaysia, $389 in Thailand and $430 in China.

Part of the reason for low penetration can be traced to the fact that increasing coverage is a costly proposition considering the capital requirements imposed on insurance firms. Thus increasing the FDI limit could lead to a capital infusion in insurance companies, helping them expand their coverage. However, a look at the existing FII holdings in insurance firms shows that even the existing limits haven’t been fully utilised. Average foreign investment in the insurance companies, both life and non-life, remains well below the current limits. It is likely that this move will now provide greater comfort to foreign investors. The country’s favourable demographics, and the extent of the underinsured market do add up to an attractive proposition. The move is also likely to benefit the smaller players who currently have limited access to long-term committed sources of finance, fostering greater competition as a consequence. This will also bring additional benefits in the form of greater technical know-how, global expertise in creating new products, and better underwriting skills — all to the advantage of the consumer.

Best of Express Premium

Mehbooba Mufti interview: ‘Of course PDP is going to fight election...Premium
Why is NCP chief Sharad Pawar meeting Brahmin community leaders in Pune t...Premium
The first stop for Azam, son out of jail was this SP leader’s housePremium
Abhinav Prakash Singh writes: At stake in Gyanvapi, the hopes of a civili...Premium

For all the latest Opinion News, download Indian Express App.

  • Newsguard
  • The Indian Express website has been rated GREEN for its credibility and trustworthiness by Newsguard, a global service that rates news sources for their journalistic standards.
  • Newsguard
0 Comment(s) *
* The moderation of comments is automated and not cleared manually by