Finally, the Government of India has extended the FDI Cap in the Insurance sector from 26% to 49%, with a view to draw more foreign capital for further development and growth in the Indian insurance sector in near future. The insurance sector of India is one of the huge and fast progressing economic sectors of the country, and regarded as being one of the top five largest and fastest growing insurance markets in the entire world. At present, this Indian insurance industry is worth about US $50 billion, and is thriving rapidly with an average annual growth rate of about 30%.For making FDI in the Insurance Sector of India, the following provisions and regulations are noteworthy by the foreign investors pertaining to countries worldwide:
- FDI up to 26% is to be made through Automatic route; and FDI beyond 26% and up to 49% is to be executed through the Government route.
- Regarding the fdi in insurance sector in india, the relevant and applicable provisions and regulations are given in the FDI Policy of India and the concerned State; the Indian Insurance Act of 1938; RBI Regulations; SEBI Regulations; IRDA Regulations; and the FEMA Regulations, 2000.
- The types of companies eligible for receiving FDI in the insurance sector of India are insurance and re-insurance companies; insurance brokers; third party administrators; surveyors and loss assessors; and other insurance intermediaries appointed as per the provisions of the IRDA Act of 1999.
- A bank is also allowed by the IRDA (Insurance Regulatory and Development Authority of India) for functioning as an insurance intermediary, provided that the revenue from its primary (non-insurance activities) business must always remain above 50% of its total revenues in any financial year. The provisions dictated for the private sector banking, will be applicable to such bank promoted insurance companies.
Impact of Foreign Direct Investment in Insurance Sector
The results and impact of foreign direct investment in insurance sector of India are most likely to be positive and profitable, both to the foreign investors, and the Indian people and insurance companies. It is because, this FDI ceiling up to 49% will enable Indian insurance companies for receiving huge foreign capital necessary for expanding and enriching their businesses of insurance and re-insurance in the nearest future. To fund appropriate development and growth in the insurance sector of India, IRDA needs about US $15 billion in the next five years, from the Indian and foreign insurance companies.
Today in India, there are about only 50 domestic insurance companies, which are engaged in providing life insurance and the general insurance. Again, only about five million Indians are covered under any insurance schemes like Mediclaim, amid over 1.2 billion of its population. Thus, the benefits of insurance being availed by Indians at present are limited to a maximum of 0.5% of its population. In well-developed and affluent countries of the world like USA, UK, Australia, France, etc., this percentage is above 50%. Hence, the insurance sector of India has immense potential and scope for development and growth in coming decades.