Foreign direct investment in the Indian insurance sector

Proposed liberation of foreign investment in the insurance sector from 49% to 74%


On 1 February 2021, at the Union Budget, the Finance Minister of India announced the proposal to increase the foreign direct investment (FDI) limit in Indian insurance companies from 49% to 74%, with a view to attract overseas capital, to enable the enhancement of insurance penetration and social protection in India.

Accordingly, the Insurance (Amendment) Act, 2021 (Amendment Act) was introduced by the Ministry of Law and Justice amending the Insurance Act, 1938 (Insurance Act), along with the draft rules to amend the Indian Insurance Companies (Foreign Investment) Rules, 2015 (Draft Amendment Rules) to facilitate the increase of the FDI limit in Indian insurance companies.


Apart from increasing the FDI limit to 74% in Indian insurance companies, the Amendment Act removes the requirement for Indian insurance companies to be domestically owned and controlled. The Draft Amendment Rules instead propose that Indian insurance companies should ensure that, (a) the majority of its directors, (b) majority of its Key Management Persons (as defined in the guidelines made by the Insurance Regulatory and Development Authority on corporate governance for insurers in India), and (c) at least one among the chairperson of its board of directors (Board), its managing director and its Chief Executive Officer, should be Resident Indian Citizens (as defined under the extant FDI policy). Existing Indian insurance companies have been given 1 year to comply with this requirement.

In order to ensure sufficient local participation and prevent excessive capital repatriation by foreign partners, the Draft Amendment Rules further propose that all Indian insurance companies having FDI exceeding 49%, should be required to:

(a) retain at least 50% of their net profit in general reserve, if during a financial year they have paid a dividend on equity shares and have had a solvency margin of less than 1.2 times the control level of solvency, and

(b) ensure that a minimum of 50% of its directors are independent directors – unless the chairperson of its Board is an independent director, in which case at least one-third of its Board shall comprise of independent directors.


India traditionally has been an under-insured country. According to data from the 2019-20 annual report of the Insurance Regulatory and Development Authority, life insurance penetration is 3.6% of India’s gross domestic product, much below the global average of 7.1%. General insurance penetration in India stands at 0.9% against the world average of 2.8%.

The FDI relaxations are likely to accelerate growth and competition in the Indian insurance sector, as increased foreign investment should enable deeper product expertise and greater underwriting capabilities. The revised foreign ownership regime should likely spur greater M&A activity in the Indian insurance sector, where many companies do require capital infusion to conserve solvency margins, particularly in light of the challenges from the current Covid-19 pandemic.

However, the Indian government’s articulation of the requirements of Indian residents’ management of insurance companies, coupled with the foreign shareholders’ control over management would be key in determining this next phase of FDI in the Indian insurance sector.

The liberalised FDI regime should enable Indian insurers to further augment their products and services and cater to the ever-developing needs of Indian businesses and consumers.


This material is for general information only and is not intended to provide legal advice. This material is distributed with the understanding that the authors are not rendering legal, accounting, or other professional advice or opinions on specific facts or matters and, accordingly, assume no liability whatsoever in connection with its use.




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