Page 33 - Insurance Times March 2021

new structure, the majority of directors on board and key Allied Benefits
management persons will be resident Indians with at least This move will help strengthen the sector and also help
50% directors being independent directors and a specified further penetration of insurance in the country, which still
percentage of profits being retained as general reserve.
is far behind the world average. The budget 2021 has indeed
taken cognizance of this and has taken the bold step of
The proposed relaxation of the ceiling was announced increasing the FDI limit which will provide an immediate
almost 10 years after the government granted approval for
backstop in terms of capital for growth and improve the
the increase of the FDI limit in the insurance sector in India insurance penetration and financial inclusion in the
from the 26% to 49% in 2012. The additional capital infusion economy. Also increasing insurance penetration would pave
in the sector will make the industry globally competitive and
the way for generating employment opportunities, which
help with growth and increasing penetration. Raising the
in turn would augment the efforts of the government to
investment cap in insurance companies was one of the key revive the economy.
demands of various global investors after the government
had amended the FDI policy to allow 100 per cent foreign The move will help make the insurance companies stronger
investment in insurance intermediaries during last year's
and enable them to further expand their businesses,
budget.
supplement their growing business needs, and deepen the
market with new products and technology. The change could
Finance Minister said investor charter would be introduced attract investments from international insurance companies,
as a right of all financial investors across all financial products. many of which have existing joint-venture operations in
Under the new structure, the majority of directors on the India, including from American International Group and
board and key management persons would be resident
United Kingdom's Prudential Plc. Take up of life and health
Indians with at least 50 per cent of directors being insurance products is low in the country of 1.3 billion people
independent directors and specified percentage of profits but is expected to grow.
being retained as general reserve. Finance Minister
proposed to amend the Insurance Act 1938 to "increase the The country's investment promotion agency, Invest India,
permissible FDI limit from 49 per cent to 74 per cent in
expects the insurance market to be worth around $250
insurance companies and allow foreign ownership and
billion by 2025. It's a huge market by size for them. That is
control with safeguards".
the main driving force for companies. More relaxed rules
for foreign investment in insurance will also help some Indian
The proposal is likely to help local private insurers grow fast insurers to attract capital and boost their businesses after
and expand their presence in India, which has one of the a slowdown caused by the COVID-19 pandemic. According
lowest insurance penetration levels globally. An increase of to the insurance law, whenever any capital infusion is
FDI in insurance to 74% will bring in more capital and more proposed in an insurance joint venture, all the partners are
importantly fresh capital from firms which have been waiting mandatorily required to bring in capital exactly in proportion
to enter India. The move will also help in improving to their shareholding in the company. If any JV partner is
insurance penetration, job creation and would result in an
unable to infuse sufficient capital as per the shareholding,
increase in merger and acquisition activity in the sector.
others are restrained from adding more capital. In such a
scenario, the insurance company ultimately suffers as it is
unable to grow its business or spend enough to sustain.

Spending Plan for Healthcare
Additionally, the INR64,180 crores ($8.8bn) spending plan
announced for healthcare over the next six years will provide
a much-needed boost for penetration of health insurance
and allow beneficiaries to access quality medical treatment,
which will lead to aspirational India and economic
development of our country. The clear focus of the budget
is to make quality healthcare more accessible and
investment in this sector needs to go up. The Pradhan Mantri
Atmanirbhar Swasth Bharat Yojana which is meant to

The Insurance Times, March 2021 33