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Indian govt raises FDI limit in insurance sector to 100%

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ISN Team
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Union Finance Minister Nirmala Sitharaman, while presenting the Union Budget 2025 in Parliament, announced that the foreign direct investment (FDI) in the insurance sector would be raised from 74% to 100%. 

Sitharaman emphasized that India’s insurance penetration remains lower than global standards. She said the new FDI limit would attract much-needed foreign capital and improve competition, ultimately helping expand the market.

FDI to draw more global insurers to India

According to Abhishek Pandya, a research analyst at Stoxbox, full foreign ownership could draw more global insurers to India, foster higher competition, and encourage new product development.

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The move is expected to strengthen the industry’s overall capital base and make insurance products more accessible to the public.

Industry experts welcome change

Industry leaders widely support the decision, highlighting its potential to boost job creation and lower premiums as more players enter the market.

Shiju PV, senior partner at IndiaLaw LLP, noted that insurance already received the highest FDI among service sectors last year. With 100% FDI now allowed, he foresees an even bigger inflow of foreign capital.

Echoing that sentiment, SAMCO Securities research analyst Raj Gaikar said increased international participation would benefit both insurers and policyholders. As global firms bring in cutting-edge technologies and modern risk management practices, existing companies will likely innovate to stay competitive.

Tapan Singhel, managing director and CEO of Bajaj Allianz General Insurance, suggested that India could see a significant rise in the number of insurers over the next decade, thanks to the improved regulatory environment.

Potential impact on insurance penetration

The insurance sector in India has long grappled with low penetration rates. According to the Insurance Regulatory and Development Authority of India (IRDAI), India’s insurance penetration was just 3.7% in 2023-24, compared with the global average of 7%.

Observers say that relaxing foreign investment limits will help bridge this gap by bringing in more capital, new products, and global best practices.

For consumers, the benefits could be wide-ranging. With more competition in the market, premiums might stabilize or even decrease. Insurers, meanwhile, stand to gain from improved access to advanced technology and expertise.

Balachander Sekhar, founder and CEO of RenewBuy, believes the reform could push Indian insurers to adopt global benchmarks in product innovation and processes, ultimately helping policyholders receive better coverage options.

Foreign players eyeing the Indian market

As of March 2024, India had 73 registered insurers and reinsurers, which included 26 life insurers, 25 general insurers, and seven standalone health insurers.

With the new FDI limit, foreign insurers that are not yet in India may explore setting up wholly owned subsidiaries. Meanwhile, existing joint ventures might undergo restructuring, as some foreign partners could choose to buy out their Indian counterparts to form fully foreign-owned ventures.

Experts say this should not only increase the number of insurers but also create more jobs and strengthen “Insurance for All,” a national goal envisioned to be achieved by 2047.

The budget’s emphasis on building a robust insurance ecosystem, combined with the government’s inclusive development principle of “Sabka Sath Sabka Vikas,” is expected to further encourage the sector’s growth.

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