Here is why India's insurance sector is aiming for 100% FDI
The Centre is planning to increase the FDI limit in insurance sector from 74 per cent to 100 per cent.
When was it last increased?
The government raised the FDI limit in the insurance sector from 26 per cent to 49 per cent in December 2014. Later in 2021, the government further increased the limit, allowing FDI investments of up to 74 per cent.
Insurance companies in India
Currently, there are 27 life insurance companies and 34 non-life or general insurance firms in India. These includes companies like Agriculture Insurance Company of India Ltd.
Insurance Regulatory and Development Authority of India (Irdai), Chairperson, Debasish Panda, speaking on the number of companies operating in India said: “The number of insurance companies in the country is not enough to cater to over 140 crore population. For example, country such as the United States, having a population of around 34 crore, has about 700 life insurance companies and the United Kingdom, with a population of 7 crore has 325 life insurance companies.”
Insurance Penetration in India
According to IRDAI (Insurance Regulatory and Development Authority of India) annual report for 2022-23, the penetration of the life insurance sector in India reduced from 3.2 per cent in 2021-22 to 3 per cent in 2022-23, while that of non-life insurance sector remained at 1 per cent in both these years.
India's overall insurance penetration reduced to 4 per cent in 2022-23, from 4.2 per cent in 2021-22. According to Swiss Re, the overall insurance penetration in 2023-24 is expected to be at 3.8 per cent in India. Penetration for life insurance in India for the year is projected to be at 2.9 per cent, and for non-life at 1 per cent.
Rationale behind increasing limit
According to experts, if the government is talking about insurance for all by 2047, it would involve a lot of capital, which means a lot of new players should enter the market. This is only possible if the government increase the FDI limit, paving the way for many companies to enter the Indian market all alone as they may find challenges of finding an India partner who aligns with the company’s culture.
It is also anticipated some consolidation may also happen just like it happened in the telecom sector, but it would increase efficiency and competition for sure. With the increasing FDI limit, it is anticipated that it would enhance the capital inflow in the insurance sector, would increase employment and better insurance penetration.
Benefit to customers
The customer would have access to various types of innovative products with reliable services as the competition in the sector would increase with entry of new players. Also, the competition would bring better efficiency and new insurance product at competitive premium.
