Finance Ministry proposes to increase FDI in insurance sector to 100%

New Delhi| The Union Finance Ministry has proposed to make some important changes in the insurance sector. This includes changes such as increasing the foreign direct investment (FDI) limit to 100 per cent, reducing paid-up capital (which is the money deposited by companies) and arranging overall licenses (which cover all types of insurance activities). These changes will be made to the Insurance Law, 1938. For this, the Department of Financial Services has asked people to give their opinion by 10 December.

According to the government’s proposal, the FDI limit in Indian insurance companies will be increased from 74 per cent to 100 per cent. DFS has sought public consultation for the second time on proposed amendments to the Insurance Act 1938, the Life Insurance Corporation Act 1956 and the Insurance Regulatory and Development Authority Act, 1999.

The Ministry of Finance had earlier also invited comments in December, 2022 on proposed amendments to the Insurance Act, 1938 and the Insurance Regulatory Development Act, 1999. The Insurance Act, 1938 is the principal legislation providing the legislative framework for insurance in the country. According to the office memorandum issued on Tuesday, it is proposed to amend some provisions of insurance laws to ensure access and affordability of insurance to citizens, promote expansion and growth of the insurance industry and streamline business processes.

In this regard, a comprehensive review of the legislative framework governing the sector has been conducted in consultation with the Insurance Regulatory and Development Authority of India (IRDAI) and the industry. The memorandum states that the proposed amendments mainly focus on promoting the interests of the insured, enhancing their financial security, facilitating the entry of more companies into the insurance market, promoting economic growth and job creation.

Such changes will help increase the efficiency of the insurance industry, increase ease of doing business and increase insurance access, achieving the goal of insurance for all by ‘2047. It provides the framework for the functioning of the insurance business and regulates the relationship between the insurer, its policyholders, shareholders and IRDAI. Entry of more companies in this sector will not only increase penetration but will also create more employment across the country. At the moment there are 25 life insurance companies and 34 non-life or general insurance companies in the country.