In case of insurance companies, the 26 per cent cap will include Foreign Direct Investment (FDI) and investments from Foreign Institutional Investors (FIIs) and Non-Resident Indians (NRIs), said a DIPP Press Note.
Earlier, only FDI under the automatic route was allowed in insurance companies.
This relaxation falls short of the demand of insurance industry which has been pleading for hiking the FDI cap in the sector to 49 per cent, from 26 per cent at present.
The Insurance Laws Amendment Bill, which seeks to raise the cap, has been pending in Parliament since 2008 and is unlikely to be taken up in the ongoing session due to lack of political consensus.
Under the norms notified today, 26 per cent foreign investment including FDI, FII and NRI will be allowed under the automatic route in insurance companies, insurance brokers, Third Party Administrators (TPAs), surveyors and loss assessees.
The decision will come into force with immediate effect, it said.
The companies bringing in foreign investment, the Press Note said, will have to obtain necessary licence from the Insurance Regulatory and Development Authority (IRDA) for undertaking prescribed activities.
Insurance brokers are entities which for remuneration arrange insurance contracts with insurers or reinsurers on behalf of their clients.
The TPAs help in facilitating health insurance on behalf of insurers. Surveyors and loss assessors provide technical services to the insurance companies.
All these entities are required to obtain a licence from the IRDA for undertaking specific activities.