Why role of foreign partners in Indian insurance has been shrinking

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26 Aug, 2025 12:21

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In 2001, when the insurance business was opened up to private sector players there was a rush of foreign players into the country who wanted to taste an unexplored market with the advantage of a rising population. Indian entities were also clueless about this segment. Cut to 2017, the industry players are of the view that having a foreign partner is no longer a must.

While the causes for this big change in strategy are partly due to the changes in the insurance laws and inclusion of Indian management and control clause that has acted as a dampener for new entities entering this space, several global companies have had constraints in their domestic markets leading to exits from the Indian market.

“The reality is, when we entered the industry is 2001 we had no clue of how this business was done. It was imperative that we mandatorily have a partner who not only brought in some capital but also had the requisite experience in the sector. That is no longer the case,” said an executive director at a private life insurance company.

The newest entrants to the general insurance sector, Kotak General Insurance as well as DHFL General Insurance, are 100 percent Indian owned.  A new digital insurance Acko General Insurance, which has received the R1 or first stage of approval from the regulator, also does not have any foreign JV partner.

In an interaction with Moneycontrol, Mahesh Balasubramanian, MD and CEO of Kotak General Insurance, said that when he decided to enter this business, the first question that crossed their minds was whether they needed a JV partner.

“Capital has never been a problem for us. Technology was available in India domestically. Today, it is a 15-year-old industry and we have been able to put together a team taking people from across the industry,” he said.

In terms of the licensing process, sector officials of the insurance sector are of the view that it is easier and faster to get the certificate of registration (R3 approval) from the regulator, if an entity decides to go solo. If there is a foreign entity involved, their books, past records as well as compliance-related matters are also inspected before permission is granted to set up presence in India.

When the Insurance Act (Amendment) Act was passed in 2015, the maximum permissible foreign direct investment (FDI) was increased to 49 percent from 26 percent in the insurance sector. Though this was expected to lead to an influx of new foreign players, many of the players from Europe and South East Asia planning to enter postponed their decisions.

Ashvin Parekh, Managing Partner, Ashvin Parekh Advisory Services, said that the insurance is a capital guzzler and earlier if the capital was coming from the foreign partner, they could have taken the stake up to 49 percent.

“The role that the foreign partner has to play in the Indian venture is also gradually coming down. People have realised that there isn’t too much of risk management, too much of capital management and actuarial inputs. People have understood this business in the domestic level itself,” he added.

An area of concern for foreign players has been the Indian management and control provision in the Insurance Act. As per the foreign direct investment norms in India, ‘control’ includes the right to appoint most of the directors or control the management or policy decisions, by virtue of shareholding, management rights, shareholder agreements or voting agreements.

Foreign joint venture partners expressed reservations about entering the country due to this clause. A senior official associated with setting up operations in India for a South East India explained that the excitement to enter the market has waned among the Asian players.

“While they are expected to bring almost an equal amount of capital like the Indian partner, the foreign partner gets only a fraction of the rights. This is why they have taken a pause,” he explained.

In the last few deals that have taken place in the Indian market, almost 1.5 to 2 have been offered as multiples to the embedded value which have spruced up valuations of the insurance companies.

Parekh added that looking at the value multiples in the initial public offering (IPO) and PE transactions in the insurance space, domestic partners would rather own 100 percent. He said that they can create value and then dilute value in the market with retail investors, where foreign institutional investors can still participate and pick it up from the market.

It is not just new players, but even existing players where exits have been seen have chosen to stay put. For instance, even three years after ING Group existed the life insurance venture in India, Exide Industries promoted Exide Life continues to be a 100 percent Indian entity.

Similarly, in April, private sector lender Kotak Mahindra Bank announced that it is buying out British partner Old Mutual's entire 26 percent stake in its life insurance arm Kotak Life Insurance. The bank is currently planning to be a 100 percent Indian-owned entity.