Govt may ease rules on dividend repatriation, managerial appointments for foreign investors in insurance

The amendment bill is expected to be sent to the Union Cabinet soon

The government may simplify regulatory norms governing foreign investment in the insurance sector, including easing restrictions on dividend repatriation and the appointment of key managerial personnel, as part of an upcoming amendment to the Insurance Act.

The proposed changes will complement the Union Budget 2024 announcement allowing 100 percent foreign direct investment (FDI) in the insurance sector. Department of Financial Services (DFS) Secretary M Nagaraju on February 3 said that the review of investment rules aims to remove regulatory bottlenecks that have deterred foreign investors from entering the sector.

"The Budget announcement consists of 100 percent FDI in insurance. Also, we want to simplify the rules for investment, review, and simplification. That is actually what we are talking about," Nagaraju said.

Key Regulatory Changes

The proposed amendments will focus on revising existing rules that impose constraints on the appointment of top executives, including chairpersons, CEOs, and other key managerial personnel in foreign-invested insurance companies. Additionally, the government may ease rules on the repatriation of dividends, ensuring a more investor-friendly environment.

"The restrictions we have kept in place through our insurance rules – those we are going to review. That applies to the appointment of chairman, CEOs, key managerial personnel, and also repatriation of dividends. All those restrictions will be reviewed as part of the bill, which means we will bring it together as an amendment to the Insurance Act," Nagaraju stated.

The amendment bill is expected to be sent to the Union Cabinet soon, following which it will be introduced in Parliament. The secretary highlighted that these changes are crucial for attracting higher foreign capital inflows into the sector.

Lagging FDI

Despite the insurance sector being opened to private and foreign investment since 2000, total FDI inflows have remained significantly lower than global benchmarks. According to government data, the sector has attracted only around Rs 82,000 crore in FDI over the past 24 years.

"That is not much. Now it is almost 24 years, and we have just received Rs 82,000 crore. So we want to attract much more FDI in the insurance sector for development, expansion, and integration," Nagaraju said.

He added that the regulatory review would bring clarity and remove ambiguities in investment rules. "Repatriation of dividends, appointment of key managerial personnel—all those things will be addressed together so that there is no ambiguity in our approach. Everything will be done as part of the amendment, ensuring a clear roadmap," he said.

Boosting Employment
The government sees the insurance sector as a crucial source of long-term capital for infrastructure development and economic growth. Nagaraju emphasised that allowing 100 percent FDI would not only enhance the sector’s global competitiveness but also provide a channel for mobilising funds toward infrastructure and pension needs.

"When the insurance sector is opened up for 100 percent, we want to ensure that funds from the insurance sector actually serve as a channel for infrastructure development. This is in the interest of the country and will help create strong, robust assets," he said.

Apart from capital inflows, the liberalisation move is expected to drive job creation in the insurance industry. "It improves competitiveness, brings in technology, and attracts global players. And, of course, the biggest thing is employment," Nagaraju added.