CrackitToday App

New Rules For Increased FDI In Insurance Sector

New Rules For Increased FDI In Insurance Sector:


The Ministry of Finance amended Indian Insurance Companies (Foreign Investment) Rules, 2015, and clarified the final rules for increased FDI (Foreign Direct Investment) in the Insurance Sector.

  • Parliament had passed the Insurance Amendment Bill 2021 to increase the FDI limit in the insurance sector to 74% from 49%.
  • The Ministry of Finance has notified ‘Indian Insurance Companies (Foreign Investment) Amendment Rules, 2021’.

Highlights of New Rules:

  • Management Persons to be Resident Indian Citizens:
    • For an Indian insurance company having foreign investment – the majority of its directors, key management persons, and at least one among the chairperson of its Board, its managing director, and its chief executive officer – will be a resident Indian citizen.
  • Total foreign investment here would mean the sum of both direct and indirect foreign investment.
  • Direct investment by a foreigner will be called Foreign Direct Investment, while investment by an Indian company (which is owned or controlled by foreigners) into another Indian entity is considered as Indirect Foreign Investment.

Insurance Penetration in India:

  • Insurance penetration in India is currently at 3.7% of the Gross Domestic Product (GDP) compared to the world average of 6.31%.
  • Growth in the life insurance sector has slowed to 11-12% currently from 15-20% until fiscal 2020, as the pandemic pushed customers to save cash instead of spending on stocks or life insurance policies.
  • As of 31st March 2021, there were only 24 life and 34 non-life direct insurers in India, whereas there were 243 life insurance companies (1956) and 107 non-life insurance companies (1973) at the time of nationalization.