The Union Finance Ministry released a consultation paper proposing to increase the limit of foreign direct investment (FDI) in the insurance sector from 74% to 100%. Earlier, the limit was increased from 49% to 74% in February 2021.
Amendments to Insurance Laws
Objectives
- To ensure availability and affordable rates of insurance for citizens.
- To encourage expansion and growth of the insurance industry.
- To simplify and streamline business processes.
- Change in Net Owned Funds: Proposal to reduce the Net Owned Funds for foreign reinsurers from Rs 5,000 crore to Rs 1,000 crore.
- Expansion of powers of IRDAI: IRDAI will get the power to prescribe lower penetration capital with a minimum of Rs 50 crore for underserved or unserved areas in special cases.
Open structure for insurance agents
- Insurance agents will be allowed to tie up with more than one life, general and health insurance company.
- Currently, insurance agents are allowed to tie up with only one life, general and health insurance company.
Need for amendment in laws
- Capital requirement: The insurance industry needs to infuse capital of about ₹50,000 crore every year to double the insurance penetration in the country.
- Importance of insurance penetration: Insurance penetration means the measurement of insurance premium as a proportion of GDP.
- Expansion of insurance coverage: India can save about $10 billion every year by increasing insurance coverage.
- Vulnerable population: A large number of Indians are still uninsured, leading to risks such as high medical expenses.
- IRDA’s Goal: Under the mission ‘Insurance for All by 2047’, IRDA is working on aggressive plans to solve the challenges of the insurance industry.
Insurance Sector in India: A Vision
Global Position
- India ranks fifth in the world among emerging insurance markets.
- The sector is growing rapidly at a rate of 32-34% every year.
Insurance Penetration:
Overall Penetration:
- 2021-22: 2%
- 2022-23: Decline to 4%
Life Insurance
- 2021-22: 2%
- 2022-23: Decline to 3%
- Non-Life Insurance: 2021-22 and 2022-23: 1% (No Change).
Number of Insurance Companies
- Life Insurance Companies: 25
- General Insurance Companies: 34
- Public Sector Insurance Companies: Life Insurance Corporation of India (LIC) is the only public sector company in the life insurance sector.
Reinsurance Sector
- India has only one national company for reinsurance:
- General Insurance Corporation of India (GIC Re).
Foreign Direct Investment (FDI):
- Foreign Direct Investment (FDI) is an investment made by a company or individual of one country with the aim of establishing direct ownership or control in the business sector of another country. This investment leads to the transfer of production, management, technology, and resources.
Key Aspects of FDI
Modes of Entry: Investors can make FDI in several ways
- Setting up a new company (Greenfield Investment).
- Acquisition of an existing company.
- Forming a joint venture partnership.
- Through merger.
Difference between FDI and FPI
- FDI: Gives the investor control over the company’s business, management and decision making.
- FPI (Foreign Portfolio Investment): Investment only in stocks and bonds, where the investor has no control.