Foreign insurers might still prefer partnering with homegrown insurers or large corporates with strong franchises and distribution networks to enter the Indian market, despite the government fully opening the sector to foreign investors, feel industry players.
The Union Cabinet on Friday approved a bill to raise the foreign direct investment (FDI) limit in the insurance sector from 74% to 100%, aimed at attracting more capital flows, global expertise and boosting the country’s insurance penetration. A bill to amend the insurance law is likely to be tabled in Parliament on Monday.
Distribution Hurdle
Kamlesh Rao, MD & CEO, Aditya Birla Sun Life Insurance, said even when the FDI limit was raised to 74% from 49%, insurance penetration did not change meaningfully, nor did it lead to a surge in capital inflows. India had increased the FDI cap to 49% in 2015, before raising it further to 74% in 2021. So far, the sector has attracted about Rs 82,000 crore in FDI inflows.
India’s life insurance penetration stands at just 2.8% of GDP, while general insurance penetration is even lower at around 1%.
Rao said the industry’s growth model has been built over decades on deeply entrenched distribution ecosystems, including agency networks, bank assurance partnerships — which for many insurers contribute 50% or more of business — and long-standing institutional relationships. “These are not easily replicated overnight, even with deeper pockets,” he added.
Only three to four of the roughly 50 life and general insurers such as Generali Central, Generali Central Life and Aviva Life Insurance have foreign joint venture partners holding the upper 74% FDI limit. In cases such as Zurich Kotak and Ageas Federal Life, foreign ownership is at 70%, while for most other insurers it remains at 49% or 26%.
New Guardrails and Continued JV Preference
Rushabh Gandhi, MD & CEO, IndiaFirst Life Insurance, said the near-term impact of the higher FDI limit is likely to be gradual rather than disruptive. “Life insurance in India continues to be a distribution-led market, where scale is driven by deep local networks and partnerships,” he said, adding that 100% foreign ownership removes some of the strategic distribution advantages joint venture partners currently enjoy.
The proposed bill is also likely to mandate that at least one among the chairman, managing director or chief executive officer be an Indian citizen. Industry executives said this could be another irritant for foreign insurers who prefer both ownership and management control.
Pallavi Malani, India leader, insurance practice at BCG, said foreign insurers evaluating India would focus on total shareholder return and return on equity, both of which remain below global averages. “Foreign players can bring technical depth but distribution partnership is critical to succeed and hence Indian partners who can provide distribution access to foreign players will be important,” she added.
Several global players in recent times preferred the JV route to enter the Indian market. Canadian insurer Manulife partnered Mahindra & Mahindra in a ?7,200-crore life insurance venture with equal shareholding. Jio Financial Services and Allianz Group announced a 50:50 reinsurance joint venture and signed a non-binding pact to set up equally owned life and general insurance ventures. Domestic brokerage Angel One has also outlined plans to invest at least ?400 crore in a 74:26 life insurance joint venture with Singapore-based LivWell Holding Company.
