Government Proposes Unified Licence and 100% FDI Cap to Transform Insurance Sector
The Indian government plans major amendments to insurance laws, including a unified licence for insurers and raising the foreign direct investment (FDI) limit in the sector from 74% to 100%, according to recent reports.
Key Highlights of the Proposed Changes
- Unified Licence (Composite Licence)
The proposed unified licence would enable insurers to offer life, general, and health insurance under a single entity.- Currently, life insurers cannot sell general or health insurance, while general insurers manage various products like health and marine insurance.
- This reform aims to simplify regulations and broaden service offerings.
- Initially suggested by the Insurance Regulatory and Development Authority of India (IRDAI) and supported by a parliamentary panel in February 2024, the proposal has gained momentum.
- Increase in FDI Limit
The government plans to raise the FDI cap to 100%, encouraging foreign investments.- This change could attract global insurers, increasing competition and fostering innovation.
- IRDAI supports the proposal, emphasizing its potential to boost investment and improve insurance penetration.
- Insurance Penetration
Despite significant potential, insurance penetration in India stood at just 3.8% of GDP in 2023.- The proposed reforms aim to expand access and make insurance products more affordable and widely available.
Next Steps
The Finance Ministry intends to present these amendments during the current Parliament session.
- The final decision depends on political approval.
- Conditions like capital and solvency requirements for insurers will likely influence the implementation.
If approved, these reforms could transform India’s insurance sector by attracting investments, enhancing market offerings, and increasing insurance penetration across the country.
