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Finance Minister Nirmala Sitharaman has announced a major increase in foreign direct investment (FDI) in the insurance sector, raising the limit from 74% to 100%
FDI In Insurance Sector
Finance Minister Nirmala Sitharaman has announced a major increase in foreign direct investment (FDI) in the insurance sector, raising the limit from 74% to 100%. This move is expected to open doors for global insurance giants, bring in significant foreign investments, and intensify competition within the Indian insurance market.
The decision to allow 100% FDI is seen as a key reform to achieve the goal of “Insurance for All” by 2047. With full foreign ownership, international insurers will have complete control over their operations in India, introducing advanced risk management practices, cutting-edge technology, and innovative products to the market.
The influx of foreign capital will provide much-needed funding to the Indian insurance sector, enabling insurers to offer better products and services. This move will also benefit foreign insurers not yet present in India. Of the top 25 global insurance firms, 20 currently have no presence in India. In addition, foreign companies already in Indian joint ventures may either exit or acquire their Indian partners to establish 100% owned subsidiaries. “We could see India moving towards a future with 1,000 insurers in the next decade,” said Tapan Singhel, MD & CEO of Bajaj Allianz General Insurance.
Despite the announcement, shares of insurance companies remained subdued, with ICICI Prudential down by 1.26% and SBI Life dropping by 1.80%.
The inflow of foreign capital is expected to generate new job opportunities and potentially lower premiums for consumers in the insurance sector. As of March 2024, India had 73 registered insurers and reinsurers, including 26 life insurers, 25 general insurers, and 7 standalone health insurers.
Balachander Sekhar, Founder and CEO of RenewBuy, stated that allowing 100% FDI could trigger a paradigm shift in the sector. The entry of international insurers will push Indian companies to adopt global best practices in product development, processes, innovation, and technology, ultimately benefiting consumers with better offerings.
The insurance sector received the highest FDI within the services sector during the April–September period of FY25, accounting for over 62% of the $5.7 billion worth of equity inflows, according to the Economic Survey 2024-25.
Alok Rungta, MD & CEO of Future Generali India Life Insurance, emphasized that the sector has long advocated for higher capital infusion and reforms that benefit policyholders. This move will attract global investors, foster innovation, and enhance financial inclusion by making insurance more accessible and affordable. Rungta also noted that the budget’s focus on building a robust insurance ecosystem will further boost policyholder confidence and increase insurance penetration across India.
In FY23-24, India’s insurance penetration stood at 3.7%, slightly lower than the 4% seen in FY22-23, according to the insurance regulator IRDAI’s Annual Report. The global average for insurance penetration is 7%.
Bringing in global best practices in processes and governance will likely improve the operational efficiency of the Indian insurance market. However, India’s unique market dynamics require a deep understanding of local needs and a long-term commitment from foreign insurers. Therefore, it is essential for global insurers to engage local experts to navigate India’s market effectively. The additional capital will support industry growth, creating more jobs and positively impacting the broader economy.
