Breather to Insurance Sector – FDI Limit Raised to 49%

With the passage of the Insurance Laws (Amendment) Bill by the Rajya Sabha, the investment starved Indian insurance sector is hopeful of getting a big boost. Although the sector had got initial boost in year 2000 when it was opened for the private players. Since then the sector has been growing gradually as several national and international players competing and increasing operations in the country. But the sector still needs huge investments. The earlier foreign direct investment ceiling was at 26% stopping foreign investors raising their stake in the domestic insurance companies. Now, as the FDI capping has been raised to 49%, the insurance companies especially the private players are hopeful of getting fresh breath.

The Bill not only paves way for foreign investors raising their stake in domestic insurers, but it has brought several changes that would impact your insurance policy.

The five important changes that you need to know as a policyholder:

  1. According to the new law, an insurance policy cannot be challenged on any ground after three years of policy issuance. This law is in favour of the policyholder. This law says that if a fraud or misrepresentation of fact (either deliberately or unintentionally) is detected after three years of the policy, subject to policy is in force, the insurers will have to pay the policy holder.
  2. But a new provision in the Bill is against policyholders. It is considered to be ‘retrograde’ for policyholders. According to this new provision, the onus to prove that the policyholder had not made any statement wrong at the time of buying the policy would lie with the policyholder and not with the insurer.By this provision, insurance companies especially with bad track record will take advantage, and policyholders would be adversely affected.
  3. The new limit of 49% for foreign investors in the domestic insurance players, is estimated to receive Rs. 20,000 crore to Rs. 25,000 crore immediately. This would help insurers to expand their operations aggressively and will definitely be fruitful for the investment starved sector and customers as well. The move will be more beneficial for domestic player having rare presence beyond metros and tier 1 cities.
  4. Another benefit for policyholders the new Bill has brought is that it gives more teeth to the insurance regulator, the Insurance Regulatory Development Authority of India (IRDAI). This would empower the regulator to penalise insurers indulged in wrongful activities.
  5. With the raising of FDI ceiling, domestic insurance firms can expand aggressively. Also, more companies are likely to enter sector as well to tap the huge market. This would create a healthy competition among the insurers, and finally customers will be benefitted with lower premiums and high benefits.

Harjot Singh Narula

Harjot Narula is founder and CEO of ComparePolicy.com, an IRDAI approved insurance web aggregator focussed on selling online insurance for companies. Harjot has more than a decade of experience in software development and has also spent 5 years in US working for the mortgage and risk management industry.

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