Bill to raise insurance FDI, launch composite licence in winter session – Economy News

The Centre may introduce a Bill to push big-ticket reforms in insurance laws in the upcoming winter session of Parliament, to further liberalise the sector. The plan is to increase the foreign direct investment (FDI) limit to 100% from 74% at present, and introduce composite licensing of life and non-life insurance, sources told FE.

Among other changes that will lead to the growth of insurance penetration in the country, capital requirements may be lowered for micro-insurance players. For composite licence, however, the the minimum capital threshold may be higher than for separate licences for life and non-life.

“The insurance amendment Bill is in the works. It may be placed before the Parliament as early as in the next session,” an official said.

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Insurance penetration was just 4.2% in India in 2021 while the global average was 7%. Moreover, the Indian insurance sector is heavily tilted towards the life insurance segment which has a share of 76%. Globally, the share of the life insurance business in total premiums was 43.7% and the share of non-life insurance premiums was 56.3% in 2021.

Given that a vibrant insurance sector fosters market stability, absorbs financial shocks, provides long-term patient capital, attracts FDI and generates employment, the government is contemplating increasing the FDI limit in the sector to 100% from 74%, the official said.

In 2021, the Insurance (Amendment) Act raised the FDI limit in the insurance sector from 49% to 74%. The FDI cap was 26% when the sector was opened up for the private sector in 2000.

Since the sector was opened up to the private sector, insurance players increased from 53 to 70 as of January 2024. However, not many Indian insurance companies have 74% foreign ownership as Indian promoters have preferred to maintain management control. In September 2022, Ageas Federal Life Insurance became the first Indian life insurance company to hold a 74% stake by a foreign partner.

Recently, Insurance Regulatory and Development Authority of India (IRDAI) Chairman Debasish Panda said there was a need for more insurance companies in the country, as the existing players are not enough to cater to the 1.4 billion population. Insurance is a capital-intensive business.

The Insurance Act and the regulations of the Insurance Regulatory Development Authority of India do not allow composite licensing for an insurer to undertake life, general, or health insurance under one entity. Allowing composite licensing could provide further impetus to the insurance sector owing to its various benefits.

It could cut costs and compliance hassles for insurers, as they could run different insurance businesses under one roof. It could also offer customers more choice and value, such as a single policy that covers life, health, and savings.

Under composite licensing, insurers have to address issues such as different risks and returns from different types of insurance; the accounting and reporting standards as they have to keep separate funds and records for different types of insurance; etc.

To promote microinsurance that plays an important role in financial inclusion and poverty alleviation, a parliamentary panel had recommended that new microinsurance products need to be developed and provided as affordably as possible for targeted groups for risks such as health, crop, life, etc. It had also recommended a lower capital requirement than the mandated requirement of a minimum Rs 100 crore, for such players.

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