MUMBAI: India’s move to further liberalize limits for insurance companies raising capital from foreign players will provide a major boost to dozens of insurers in the way of fresh fund-raising avenues while paving way for top global insurers to enter India’s highly underpenetrated insurance sector.
After years of deliberation, the Indian government has increased the Foreign Direct Investment (FDI) limit in insurance companies to 74% against the current 49%, Finance Minister Nirmala Sitharaman announced on Monday in the Union Budget of 21-22 albeit some “safeguards”.
Prominent industry CEOs and experts claim that the move will provide a fillip to an industry which has not lived up to expectations in providing coverage to a large chunk of the country’s over 130 crore population over the last two decades.
“This showcases the government’s intent to further liberalize the sector for global players,” said Ashish Vohra, the CEO of Reliance Nippon Life Insurance Company.
“Insurance is a long gestation business…(the move) is a fresh window for accessing growth capital for unlisted insurers which is likely to be deployed for expanding distribution reach, new product creation and investment in technology deployment,” Vohra added.
India’s life and non-life insurance penetration in 2019 at 2.82% and 0.94% respectively are also significantly lower than the global average of 3.35% and 3.88%, respectively according to the government’s latest Economic Survey of 2021.
Under the new structure proposed by the Finance Minister, the majority of Directors on the Board and key management persons would be resident Indians, “with at least 50% of Directors being Independent Directors, and specified percentage of profits being retained as general reserve.”
The FDI cap on insurance companies was first raised from 26% to 49% in March 2016. A further relaxation of this limit was a long-standing demand of the insurance industry. “The suggestions from various stakeholders to further open up FDI in the insurance sector has been considered,” said Pankaj Arora, MD and CEO, Raheja QBE General Insurance.
Experts anticipate more of the country’s 23 private life insurers and 28 private general and health insurers to contribute to the growth of the sector with more impact.
“Insurance is a capital-intensive business and post the pandemic, many Indian partners are not in a position to invest further capital in their companies,” said Vighnesh Shahane, MD & CEO, Ageas Federal Life Insurance. “Certain companies also require capital infusion to conserve Solvency Margins.”
According to Sandeep Ghosh the National Leader of insurance at EY, the move signals positive intent to private equity and global investors looking at India’s insurance sector for opportunity.
“This will allow a number of mid-sized and smaller players to recapitalize themselves and compete effectively with the larger players, thus making it a more level playing field with better outcomes for the customers,” said Ghosh who is also a Partner at EY.