Impact of Relaxing FDI Limit in Insurance Intermediaries

Union Budget 2019 has proposed a relaxing FDI (foreign direct investment) limit to insurance intermediaries that will strengthen distribution capabilities and global exposure as well, especially from developed markets. It will also help to increase competition, boost insurance penetration and boost M&A activities that will prove beneficial for the insurance sector.

Impact on Intermediaries of Relaxing FDI Limit  in Insurance

A few years ago FDI was not included in insurance services. Well, it has certain reasons but now the Indian government relaxed the restrictions and make things clear about FDI and insurance. We know that if any abroad company wants to grow business in India, then he/she must be going through with the FDI rulebook. And last year Indian government made changes to the rules. And these rules make insurance more demandable. Relaxing foreign investment limits in insurance intermediaries will strengthen distribution capabilities and increase international involvement, especially in big and developed markets of the world.

At present, there is an FDI limit of 49% that applies to intermediaries in the insurance sector including agents, brokers, third-party administrators, web aggregators, surveyors & loss assessors. The budget for FY 2019-20 relaxed FDI limit up to 100% for insurance intermediaries which will attract more investments from foreign companies into the insurance industry.

In order to open up the insurance market for foreign investors, the government needs to make some changes to the current regulatory regime.

• Amendment in the FDI policy specifying the relaxation in FDI limit applicable to insurance intermediaries.
• As per changes in FDI policy, amendments in the Foreign Exchange Management Regulations 2017 will also be required.
• An amendment in rule 9 of the Indian Insurance Companies (Foreign Investment) Rules 2015, will also be required to exempt intermediaries from the 49% FDI limit.
• There needs to amend the guidelines for the meaning of ‘Indian Owned and Controlled’ dated 19th October 2015, along with a clarification to the ‘Guidelines on Indian Owned and Controlled for Insurance Intermediaries’.

Regulation 19(5) of the IRDAI (Insurance Broker) Regulations, 2018 issued by IRDAI specifies that the holdings or contribution by foreign investors in an insurance company shall be as required by the Central Government from time to time. Thus, no broker regulations shall require to be amended to relax the FDI limit.

Once the above changes are implemented, the insurance sector in India will look forward to getting the know-how, technical innovation, global best practices & creation of new jobs. It will give a boost to the sector & to the customers as well. Considering the given relaxation of the FDI limit in the insurance sector, there seems a wide potential in the sector and with the infusion of capital, insurance companies will start offering a new & innovative range of products to cover the risks comprehensively.

In the Asia Pacific region, countries have eased restrictions and have provided 100% FDI in insurance companies. China will also give permits to foreign companies to own a 100% stake in domestic insurers by 2020. Similarly, Indonesia has proposed to give relaxation of FDI by up to 80% with a motive to infuse more capital by foreign insurance companies.