INDIA – FDI hike in insurance

The Government has decided to hike the foreign direct investment (FDI) cap in insurance from an existing 26 percent to 49 percent, which seems to have elicited a cautious response from investors. The proposal is subject to legislative amendments requiring voting in the Parliament and is necessary for driving future growth in the domestic insurance industry.

 

The overall penetration of life insurance stood only at only 4.40 percent of the country’s GDP in terms of total premiums underwritten and that precisely justifies the need for increase in the FDI limit. The other reason has to do with solvency margins.

 

On general insurance front, the proposed increase in FDI would probably yield faster results than in life insurance.

 

For a country with over one billion population, the size of life insurance business, a vital component of social security, is abysmally low. The share of the Indian life insurance business amounted to just 2.69 percent of the global market in 2010, as per the data from the Insurance Regulatory and Development Authority (IRDA).