After a seven-year wait, Parliament passed the Insurance Amendment Bill to raise the foreign direct investment (FDI) limit in the insurance...
After a seven-year wait, Parliament passed the Insurance Amendment Bill to raise the foreign direct investment (FDI) limit in the insurance sector to 49% from 26%. The government had earlier issued an ordinance in December to raise the FDI cap in the sector. The amended legislation is expected to increase the confidence of foreign insurance companies looking to tap the Indian market and provide a major boost to the fund-strapped domestic insurance industry. The passage of the Bill is the first major economic reform of the Modi government.
In the next five years, the insurance industry in the country will require R55,000 crore of additional capital —R44,500 crore for life insurers and R10,500 crore for non-life insurers—to further insurance penetration and create capabilities around pricing, underwriting and developing innovative products. Life insurance penetration in the country slipped to 3.1% in 2013 from 4.6% in 2009 because of a host of regulatory changes and new product structures. Higher FDI inflows in the insurance sector will drive economic growth and long-term funding in Indian infrastructure projects.
Analysts say the industry may also witness limited consolidation, and the increase in consumer protection is likely to result in positive impact in terms of improved customer-service, customer experience and customer education. Allowing the reinsurance companies to set up branches will help in enhancing the depth of reinsurance services in the domestic market, and state-run non-life insurance companies can now tap the domestic capital markets to raise funds.