Finance Minister Nirmala Sitharaman has proposed a 100 percent foreign direct investment (FDI) in the insurance intermediaries in the Union Budget 2019. The FDI limit is set at 49 percent currently.
Sitharaman also said that the government was also looking into the possibility of hiking the FDI limit in the insurance companies. However, she did not indicate the new cap that the government was considering. Nevertheless, there were indications that the Narendra Modi-led government had been in favour of a 74 percent FDI cap for insurance companies.
Insurance intermediaries are the backbone of the industry. They help in distribution of insurance policies and also help customers get attractive rates for the products.
Insurance intermediaries include insurance brokers, insurance repositories, surveyors and loss assessors, third-party administrators (TPA) as well as web aggregators like Policybazaar. Several foreign companies like Marsh and JLT are present in the Indian insurance broking space through joint ventures.
Bhargav Dasgupta, MD & CEO, ICICI Lombard General Insurance said that the move to allow 100 percent FDI for insurance intermediaries is a positive one and will help in the long-term and holistic development of the industry.
The Insurance Act (Amendment) Act 2015 increased the FDI cap in the insurance sector to 49 percent from 26 percent. This law was passed amidst stiff protests from the opposition parties who expressed concerns about foreign entities controlling the Indian insurance sector.
However, the government has been considering the 100 percent FDI in insurance intermediaries proposal for the past two years. The insurance regulator was also in favour of a 100 percent FDI for insurance intermediaries.
An FDI hike could also boost use of newer technologies, according to industry experts.
Govinder Kapoor, Chairman, Proclaim Insurance Surveyors and Loss Assessors said that presently in India, there is a huge gap between the technology used by the insurers and the surveyors.
“Entry of foreign players will also bring in the latest technology and advanced digital platform used by surveyors worldwide,” he added.
An Assocham report had said that the Indian insurance industry is expected to grow to USD 280 billion by 2019-20.
Anik Jain, co-founder & CEO, Symbo Insurance said that the 100 percent FDI ownership for insurance intermediaries is going be a game-changer as high quality global capital and expertise flows into the Indian insurance industry.
However, Jain added that the impact of this FDI decision will see an increase in insurance protection only if it is complimented by tax breaks both at the individual level as well at the goods and services tax level.
An increase in FDI would help bring more investment, enabling companies to expand operations and create more jobs.
Vikram Chhatwal, Whole-Time Director, Medi Assist Insurance TPA said that the change in FDI will attract significant investment in the sector and enable adoption of global best practices and lead to significant job creation both directly and indirectly.
Insurance is a capital-intensive sector. When the insurance FDI was hiked in 2015, there was an expectation that almost Rs 60,000 crore would flow into the sector. However, the actual flows were less than half of the number.
Now that another hike in the insurance sector FDI has been proposed, it is likely that this could pique the interest of those waiting on the hinges. After the change in the Insurance Act in 2015, a provision called ‘Indian management control’ was announced. This meant that the control of the company was to be in the hands of the Indian shareholder at all times.
This led to discontent among foreign shareholders since they were of the view that they were unable to take a lead in key decisions in the companies. If the FDI in insurance companies is raised to 74 percent, it is to be seen if the management control provision is retained.
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