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49 % FDI in Insurance: 7 Things You Should Know

In a landmark moment for the insurance sector, the Insurance Laws (Amendment) Bill was approved by the Cabinet of ministers in July. It was then introduced in the Lok Sabha where it has met with opposition. This is primarily because the bill raises the FDI in insurance sector to 49% from the current 26% which has stoked concerns about ceding control to foreign players in a sensitive sector. While the debate rages on about whether FDI increase in the sector is desirable, here’s a quick overview of the situation: 

Why Increased FDI in Insurance is a Positive Step:

  • India has one of the lowest penetrations of insurance in the world. With an influx of capital, the penetration of insurance is expected deepen.
  • Heads of companies like HDFC, Standard Life and others estimate from 20,000 crores to 60,000 crores of investment in the sector with the change in FDI limit. This will have a positive effect on the economy in general.

How This Bill Affects You:

  • Investment from outside the country is not just expected to lead to more players entering the fray but also to established players growing their operations to serve regions and customers that they weren’t able to focus on for lack of capital. This expansion should create a multitude of jobs.
  • The technical and product expertise of foreign partners, coupled with increased investment is likely to lead to better products and offerings for insurance customers over the long term.

The Insurance Bill:

  • The Insurance Laws (Amendment) Bill has been pending since 2008 when the Congress-led United Progressive Alliance government proposed to hike foreign holding in insurance joint ventures to 49 per cent.  It has been introduced in Parliament by the BJP led National Democratic Alliance government.
  • The Finance minister, Arun Jaitley, said in his budget speech mooting a higher FDI limit in insurance that the sector is investment starved and needs capital to expand.
  • For those wondering who will control the JV entity, the Insurance Bill is clear. The management control will reside with the Indian company.