Is the Narendra Modi government at the Center preparing to open the doors to foreign direct investment (FDI) in the domestic insurance sector? Signs indicate that it might.
The central government is gearing up for significant reforms in the insurance sector, which are expected to include a green light for 100 percent FDI.
According to a recent report by a leading national daily, the proposed Insurance Act Amendment Bill, which would allow full foreign ownership of insurance companies, will likely be introduced in Parliament by the end of this month.
Currently, the FDI limit in India’s insurance sector is 74 percent, meaning foreign ownership in an insurance company cannot exceed 74 percent, while Indian shareholders must hold at least 26 percent.
The new bill is expected to lift this limit entirely, enabling foreign companies to establish their own insurance businesses in India without the need for partnerships with local firms.
Central government sources claim this decision will strengthen the Indian insurance sector, attract substantial foreign investments, increase competition, and make insurance more affordable.
However, various market groups and experts have expressed concerns about the potential negative impact this move may have on opportunities for local companies.
Regarding LIC: The government is also looking to expand opportunities for the state-owned Life Insurance Corporation (LIC) through the amendment to the Insurance Act.
Reports suggest that with the new law, LIC may explore establishing a health insurance arm, which is currently not allowed under existing regulations. Meanwhile, the insurance regulator, IRDAI, will likely need to amend specific licensing requirements.
More Changes: The Center plans to amend the current insurance legislation through the new law to remove restrictions on insurance agents and allow them to sell policies from multiple companies freely.
Under the current rules, agents are restricted to working for a single company. Still, there have been instances of people working as agents for multiple firms using the names of family members.
The new law aims to legalize such practices, granting agents in life and general insurance the ability to sell policies from any company.
The government believes this will further increase the number of insurance policyholders in the country.
Currently, 24 life insurance companies, 26 general insurance companies, and 6 health insurance companies operate in India, with the General Insurance Corporation (GIC) acting as the reinsurer for all these entities.