Impact of Relaxing FDI Limit in Insurance Intermediaries

July 21, 2021

Union Budget 2019 has proposed for relaxing FDI (foreign direct investment) limit to insurance intermediaries that will strengthen distribution capabilities and global exposure as well, especially from developed markets. It will also help to increase competition, boost insurance penetration and boost M&A activities that will prove beneficial for the insurance sector.

At present, there is FDI limit of 49% that applies to intermediaries in insurance sector including agents, brokers, third-party administrators, web aggregators, surveyors & loss assessors. The budget for FY 2019-20 relaxed FDI limit up to 100% for insurance intermediaries that will attract more investments from foreign companies into the insurance industry.

In order to open up the insurance market for foreign investors, the government needs to make some changes in the current regulatory regime.

  • Amendment in the FDI policy specifying the relaxation in FDI limit applicable to insurance intermediaries.
  • As per changes in FDI policy, amendment in the Foreign Exchange Management Regulations 2017 will also be required.
  • An amendment in rule 9 of the Indian Insurance Companies (Foreign Investment) Rules 2015, will also be required to exempt intermediaries from 49% FDI limit.
  • There needs to amend the guidelines for the meaning of ‘Indian Owned and Controlled’ dated 19th October 2015, along with a clarification to the ‘Guidelines on Indian Owned and Controlled for Insurance Intermediaries’.

Under Regulation 19(5) of the IRDAI (Insurance Broker) Regulations, 2018 issued by IRDAI specifies that the holdings or contribution by foreign investors in an insurance company shall be as required by the Central Government from time to time. Thus, no broker regulations shall require to be amended to relax the FDI limit.

Once the above changes are implemented, the insurance sector in India will look forward to get the know-how, technical innovation, global best practices & creation of new jobs. It will gives boost to the sector & to the customers as well. Considering the given relaxation of FDI limit in insurance sector, there seems a wide potential in the sector and with the infusion of capital, insurance companies will start offering new & innovative range of products to cover the risks comprehensively.

In Asia Pacific region, countries have eased restrictions and have provided 100% FDI in insurance companies. China will also give permit to foreign companies to own 100% stake of domestic insurers by 2020. Similarly, Indonesia has proposed to give relaxation in FDI up to 80% with a motive to infuse more capital by foreign insurance companies.

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