The Ministry of Industry and Internal Trade Promotion has officially opened up the Indian insurance sector to allow up to 100% foreign direct investment (FDI) through the automatic route, marking a major shift in the ownership policy of insurance companies operating in the country.
Under the revised framework, foreign investors will no longer need to obtain prior government approval to acquire full ownership of Indian insurance companies.
The move, which effectively removes previous foreign investment caps, is expected to prompt greater capital inflows, increased competition and potential consolidation within the market.
International industry bodies have long awaited this reform.
In March last year, the Global Federation of Insurance Associations (GFIA), which represents insurance associations globally, publicly supported India’s proposal to amend the insurance laws in line with the changes now enacted, signaling strong global support for comprehensive liberalization of the industry.
It is worth noting that regulatory safeguards accompany liberalization.
In other words, insurance companies must continue to comply with the Insurance Act, 1938 and related foreign exchange regulations, while continuing to be regulated by the Insurance Regulatory and Development Authority of India (IRDAI).
Additionally, governance requirements remain in place, including the requirement that at least one of the chairman, managing director or chief executive officer be a resident of India.
Reinsurance News understands the change brings the insurance industry in line with other industries that have moved to automated route investment structures, while maintaining regulatory oversight and local accountability.
