Fitch: Relaxing FDI laws to benefit insurers

India’s proposed removal of the foreign-ownership cap on insurance intermediaries is likely to increase competition, strengthen distribution capabilities to enhance insurance penetration and boost M&A in the medium to long term, Fitch Ratings states. More international companies are likely to enter the fast-expanding Indian market. The proposal comes at time when other countries in the region are planning to lift restrictions on foreign ownership in their insurance markets.

The government of India proposed on 5 July 2019 to permit foreign companies to own up to 100 percent of insurance intermediary companies, including insurance agents, brokers, loss assessors and surveyors, from the 49 percent, to attract more foreign direct investment into the industry. The proposed change is only applicable to insurance intermediaries while the cap on foreign ownership in insurance companies will remain at 49 percent. Still, the government has indicated that it may take further measures to open up the insurance market to foreign investors. This could include the relaxing of foreign ownership restrictions on insurance companies.

Fitch believes India’s move on insurance intermediaries will attract more international companies into the rapidly growing Indian market and promote competition within the sector.

India’s move corresponds well with the deregulatory measures some other countries in APAC have undertaken, particularly in easing restrictions on foreign ownership of domestic insurance companies. India has also proposed reducing the minimum net-owned funds requirement for foreign reinsurers willing to open branches in India to INR10 billion from INR50 billion, to encourage reinsurers into the domestic market.