The government is expected to introduce the Insurance Amendment Bill 2024 during the winter session of Parliament, proposing some bold reforms for India’s insurance industry. Narayanan V delves into the potential changes and their impact on the industry
What is likely to be included in the Bill?
The Insurance Amendment Bill 2024 is expected to include two significant reforms. First, the government plans to hike the foreign direct investment (FDI) limit in the insurance sector to 100% from 74%. Second, the Bill will introduce a unified or “composite” licence regime, allowing insurers to offer life, general, and health insurance products under a single entity. These measures aim to attract more foreign players and improve India’s insurance penetration, which currently stands at a low 4%. This can enable insurers to offer customers more choice and value and even a single policy that covers life, health and savings. This would help improve policyholders’ financial security and increase returns from traditional life insurance policies.
Additionally, the Bill is likely to permit individual insurance agents to sell policies from multiple companies, eliminating the existing restriction that limits them to one life and one general insurer. The Bill may lower entry barriers by reducing the initial capital requirements for insurers (currently Rs 100 crore) and reinsurers (Rs 200 crore).
Why is 100% FDI in insurance needed?
The call to fully open the insurance sector to foreign players has gained momentum in recent times, particularly after Germany’s Allianz Group decided to exit its 26% joint venture with Bajaj Finserv. The split, after two decades, is believed to be due to Bajaj Finserv’s reluctance to allow Allianz to hike its stake.
India hiked the FDI limit from 49% to 74% in 2021. However, only 3-4 out of the 50-odd insurers have foreign partners holding the full 74% stake. In many cases, foreign partners’ stakes remain limited to 49% or 26%.
On several occasions, Irdai chairman Debasish Panda has advocated allowing 100% FDI in insurance, arguing that it would enable foreign players to operate independently, bring in global expertise, and strengthen the sector’s capacity and technological capabilities.
Will this attract foreign players?
Research firm Swiss Re Institute suggests that a combination of 100% FDI and a single-licence regime could significantly boost investments and improve insurance penetration in India. Industry experts also say that FDI limit increase would provide “psychological” comfort to foreign players, who often prefer to retain full ownership and management control.
Japan’s Tokio Marine was the last major insurer to enter the Indian life insurance market, back in 2011. In contrast, several foreign insurers, including AXA, Standard Life Aberdeen, and Old Mutual, have exited the market in the last decade.
However, scaling up independently in the Indian market may not be easy. Foreign players who entered India in the past relied on partnerships with large Indian companies such as Bajaj, HDFC Bank and ICICI Bank. To succeed, foreign players will need to find partners with long-term capital, strong brands, and well-established distribution networks.
Need for composite licence
Currently, life insurance companies are restricted from selling health or general insurance products, and vice versa. The concept of a composite licence was first proposed by Irdai last year and later endorsed by a parliamentary panel. It aims to allow insurance companies to offer life, health, and general insurance products—such as fire and marine insurance—under a single entity.
A composite licence is expected to reduce costs for insurers and lower their compliance burden by eliminating the need for multiple entities to run different lines of business. It will also enable insurers to develop innovative products that combine offerings from adjacent sectors, such as life and health insurance. It may even help reduce mis-selling. If implemented, India will join the ranks of mature insurance markets like the UK, Australia, and Singapore that already allow composite licences.
How will this help domestic players?
A composite license won’t just benefit foreign players but also Indian insurers by enabling them to diversify their portfolios and adapt to market trends. For instance, Life Insurance Corporation of India (LIC) has already announced plans to enter the health insurance market, while standalone health insurer Star Health has expressed interest in diversifying into term and motor insurance once the regime is implemented.
For foreign players, the composite licence will simplify operations. Currently, insurers such as Allianz, Generali and Sanlam operate separate joint ventures for life and non-life businesses in India. With a composite licence, they can consolidate these ventures into a single partnership, streamlining distribution and reducing operational complexities. This could also make the Indian insurance market more attractive for new foreign entrants. An integration will also significantly benefit the underwriting process and insurers will be able to minimise risks and rationalise costs.