The government is expected to introduce the Insurance Amendment Bill 2024 during the winter session of Parliament, proposing some bold reforms for India’s insurance industry. Narayanan V delves into the potential changes and their impact on the industry
What is likely to be included in the Bill?
The Insurance Amendment Bill 2024 is expected to include two significant reforms. First, the government plans to hike the foreign direct investment (FDI) limit in the insurance sector to 100% from 74%. Second, the Bill will introduce a unified or “composite” licence regime, allowing insurers to offer life, general, and health insurance products under a single entity. These measures aim to attract more foreign players and improve India’s insurance penetration, which currently stands at a low 4%. This can enable insurers to offer customers more choice and value and even a single policy that covers life, health and savings. This would help improve policyholders’ financial security and increase returns from traditional life insurance policies.
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Additionally, the Bill is likely to permit individual insurance agents to sell policies from multiple companies, eliminating the existing restriction that limits them to one life and one general insurer. The Bill may lower entry barriers by reducing the initial capital requirements for insurers (currently Rs 100 crore) and reinsurers (Rs 200 crore).
Why is 100% FDI in insurance needed?
The call to fully open the insurance sector to foreign players has gained momentum in recent times, particularly after Germany’s Allianz Group decided to exit its 26% joint venture with Bajaj Finserv. The split, after two decades, is believed to be due to Bajaj Finserv’s reluctance to allow Allianz to hike its stake.
India hiked the FDI limit from 49% to 74% in 2021. However, only 3-4 out of the 50-odd insurers have foreign partners holding the full 74% stake. In many cases, foreign partners’ stakes remain limited to 49% or 26%.
On several occasions, Irdai chairman Debasish Panda has advocated allowing 100% FDI in insurance, arguing that it would enable foreign players to operate independently, bring in global expertise, and strengthen the sector’s capacity and technological capabilities.
Will this attract foreign players?
Research firm Swiss Re Institute suggests that a combination of 100% FDI and a single-licence regime could significantly boost investments and improve insurance penetration in India.
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