Page 30 - Insurance Times March 2021

BUDGET 2021 OPENED

FLOODGATES FOR

FOREIGN CAPITAL TO

ACCELERATE GROWTH

OF INSURANCE

INDUSTRY

I India's life and non-life insurance penetration in 2019, benefiting the economy. The non-life insurance sector has

finally witnessed a long-standing demand being fulfilled in the
at 2.82% and 0.94% respectively, are significantly
lower than the global averages of 3.35% and 3.88%,
increase in the FDI limit to 74% which will catalyze the long-
respectively. Five years after India increased the ceiling
on overseas ownership in its insurers, Finance Minister term development and growth of the industry.
heralded bold reforms in a sector considered crucial for The FDI cap on insurance companies was first raised from 26%
underpinning infrastructure financing. Finance Minister to 49% in March 2016. A further relaxation of this limit was
raised the headroom on foreign holding to 74% in one go, a long-standing demand of the insurance industry. Insurance
potentially multiplying fund-raising avenues in a long- is a capital-intensive business and after the pandemic, many
gestation industry that needs as much capital as is available. Indian partners are not in a position to invest further capital
in their companies. Certain companies also require capital
Under the new structure proposed by the Finance Minister, infusion to conserve Solvency Margins. The move signals
the majority of directors on the boards and key management positive intent to private equity and global investors looking
personnel must be resident Indians, "with at least 50% of at India's insurance sector for investment opportunities.
directors being independent directors, and a specified
percentage of profits being retained as general reserve." This This will allow a number of mid-sized and smaller players to
is bound to attract enhanced flow of capital to the sector, recapitalize themselves and compete effectively with the
larger players, thus making it a more level playing field with
About the author better outcomes for the customers. The Union Budget
proposes that the foreign direct investment (FDI) limit for
Jagendra Kumar
the insurance sector be increased from the current 49% to
Ex. CEO, 74%. Along with the higher FDI ceiling, Finance Minister
Pearl Insurance Brokers mentioned that amendments to the Insurance Act 1938 will
Jaipur allow foreign ownership and control with safeguards.

30 The Insurance Times, March 2021