Finance Ministry proposes 100% FDI in insurance sector

New Delhi, Nov 29: Stocks of insurance companies have surged following the Ministry of Finance’s proposal to raise the foreign direct investment (FDI) limit in domestic insurers from 74% to 100%. This move is part of a broader set of proposed amendments to the Insurance Act of 1938, which also includes reducing paid-up capital requirements and introducing a composite license for insurers.

The Department of Financial Services (DFS) has opened a public consultation on these proposals, with feedback being invited until December 10. The announcement has led to a positive market reaction, particularly among general insurance stocks. Companies such as New India Assurance, LIC, and General Insurance Corporation of India have gained up to 15.5% over the past week, with all general insurance stocks trading higher on the day of the announcement. However, life insurance stocks like HDFC Life, SBI Life, and Max Financial have remained subdued due to ongoing regulatory concerns.

This is the second public consultation on amendments to the Insurance Act of 1938, the Life Insurance Corporation Act of 1956, and the Insurance Regulatory and Development Authority (IRDAI) Act of 1999. Last December, the Ministry sought feedback on similar proposed revisions to these laws.

The proposed changes are aimed at making insurance more accessible and affordable, fostering industry growth, and streamlining business processes. Key proposals include increasing the FDI cap in Indian insurance companies to 100%, allowing insurers to engage in multiple lines of business, and reducing the minimum net-owned funds for foreign reinsurers from Rs 5,000 crore to Rs 1,000 crore. Additionally, the IRDAI would have the power to set lower capital requirements for underserved markets.

These reforms are expected to boost competition in the insurance sector, promote job creation, and help achieve the goal of “Insurance for All by 2047,” while also improving financial security for policyholders. The changes aim to increase the efficiency of the industry and expand insurance coverage across the country. Currently, India has 25 life insurance companies and 34 general insurance companies.