FDI INSURANCE SECTOR: ECONOMY

FDI INSURANCE SECTOR: ECONOMY

NEWS: Union govt proposes increase in FDI limit in insurance sector to 100%

WHAT’S IN THE NEWS?

The Union Finance Ministry proposed increasing FDI in the insurance sector from 74% to 100% and reducing the Net Owned Funds requirement for foreign reinsurers to Rs 1,000 crore. The move aims to boost capital, expand insurance penetration, and achieve the "Insurance for All by 2047" vision.

FDI in the Insurance Sector:

Proposal Highlights:

  1. FDI Limit Increase: Proposed increase in the Foreign Direct Investment (FDI) limit from 74% to 100%.
  2. Objective: To enhance accessibility and affordability of insurance, expand the insurance industry, and streamline business operations.
  3. Net Owned Funds: Proposal to reduce the Net Owned Funds requirement for foreign reinsurers from ₹5,000 crore to ₹1,000 crore.
  4. Entry Capital: Empower IRDAI to specify lower entry capital (minimum ₹50 crore) for underserved or unserved segments.
  5. Classes of Business: Insurers may be allowed to operate in multiple classes of insurance business and related activities.

Need for the Proposal:

  1. Insurance for All by 2047 Vision: Aligns with IRDAI’s target of achieving universal insurance coverage by 2047.
  2. Capital Requirements: Estimated need for ₹50,000 crore annually to double insurance penetration.
  3. Economic Survey Data:
    • Insurance penetration declined to 4% in FY23 (from 4.2% in FY22).
    • Life insurance penetration fell to 3% in FY23 (from 3.2% in FY22).
    • Non-life insurance penetration remained at 1%.

Current Industry Landscape:

  1. Life Insurers: 25 companies, including LIC.
  2. General Insurers: 34 companies.