Parliament on March 22 passed the Insurance Amendment Bill 2021 to increase the foreign direct investment (FDI) limit in the insurance sector to 74% from 49%.
The Finance Ministry on Thursday formally notified the amendment to the Indian Insurance Companies (Foreign Investment) Rules, 2015 and clarified on the final rules for increasing the foreign direct investment limit in the insurance sector to 74% from the existing 49%.
Parliament on March 22 passed the Insurance Amendment Bill 2021 to increase the foreign direct investment (FDI) limit in the insurance sector to 74% from 49%. This measure was first announced by finance minister, Nirmala Sitharaman in the Union budget last month.
“Total Foreign Investment" in an Indian Insurance Company, shall mean the sum total of direct and indirect foreign investment by Foreign Investors in such company, calculated in such manner as is specified in regulations made by the authority with regard to registration of Indian Insurance Companies," according to Gazzette.
It also mentioned that every Indian insurance company having foreign investment, existing on or before the date of commencement of the Indian Insurance Companies (Foreign Investment) Amendment Rules, 2021, shall within one year from such commencement, comply with the requirements of the provisions.
Any Indian insurance company with foreign investment exceeding 49% should have half of its board of directors as independent directors “unless the chairperson of its board is an independent director, in which case at least one-third of its board shall comprise of independent directors."
The proposal to increase foreign investment is likely to help local private insurers grow fast and expand their presence across India, which has one of the lowest insurance penetration levels globally.
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.