The Ministry of Finance has invited comments on proposed amendments to key insurance laws by December 10, 2024, paving the way for significant reforms, including raising the foreign direct investment (FDI) cap in the sector to 100 percent.
The draft bill is expected to be tabled in the ongoing winter session of Parliament, according to finance ministry sources. The bill also proposes composite licences for insurers and eased norms for foreign reinsurers.
The Department of Financial Services, in a memorandum dated November 26, mentioned proposed changes to the Insurance Act, 1938, the Life Insurance Corporation Act, 1956, and the Insurance Regulatory and Development Authority Act, 1999. These amendments aim to “enhance accessibility and affordability of insurance, streamline industry processes, and achieve the government’s target of 'Insurance for all by 2047", stated the note.
Among the key proposals is raising the FDI limit in insurance companies from the current 74 percent to 100 percent, which is expected to attract global players and increase competition in the market. Additionally, the draft includes provisions to allow insurers to hold composite licences, enabling them to offer life, general, and health insurance under one entity, a move long advocated by the Insurance Regulatory and Development Authority of India (IRDAI).
The memorandum also recommends reducing the net-owned funds requirement for foreign re-insurers from Rs 5,000 crore to Rs 1,000 crore. Further, it empowers IRDAI to specify lower entry capital, no less than Rs 50 crore, for insurers targeting under-served or unserved segments.
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“This comprehensive review of the legislative framework was conducted in consultation with IRDAI and industry stakeholders,” according to the memorandum. The reforms are intended to foster economic growth, create employment opportunities, and improve ease of doing business in the sector.
According to other reports, the short window for feedback is due to prior consultations and the urgency to present the bill during the winter session, which concludes on December 20. Industry bodies, including the General Insurance Council, have already expressed support for the reforms.
The government’s proposals also include measures to increase insurance penetration in India, currently at around 4 percent, and to provide greater flexibility for insurance agents, enabling them to sell policies from multiple companies.
India currently has 24 life insurers, 26 general insurers, and 6 standalone health insurance firms, with the General Insurance Corporation (GIC) serving as the sole reinsurer. IRDAI Chairman Debasish Panda has earlier said that 100 percent FDI and unified licences could help foreign players bring global expertise and enhance capacity in the insurance sector.
Similarly, Amitabh Kant, India's G20 Sherpa, in a conversation with Moneycontrol in September, said that there was a need for faster implementation of such reforms to attract greater investments. Swiss Re Institute noted that these measures could significantly boost insurance penetration and investments in India.
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