India's relaxed rules on investment for insurers set to trigger interest from EU, US

According to the 2021-22 annual Indian Budget, the government will allow FDI of up to 74% in insurance entities, up from 49% currently, clearing the way for "foreign ownership and control with safeguards".

The Indian government on Monday said it plans to raise limits on how much foreign companies can invest in the country's insurance industry, a move that could attract inflows from U.S. and European insurers.

India Global Business had commented on the insurance sector observing that the strategy is not a new one given that the Narendra Modi government had been instrumental in opening up the insurance sector and enabling the growth of the industry.

The most important component which is FDI in the insurance sector remained capped at 49% under the automatic route.

The decision to ease FDI norms has not only enabled foreign brokerage companies to buy stakes in Indian companies, but has also brought global best practices to the country, covering new insurance products and selling strategy. As a result, the right insurance policy is now being sold to the right client.

The launch of Ayushman Bharat has also helped bridge the insurance gap, especially in semi-urban and rural areas, by covering the poor and vulnerable through widespread networks.

When Prime Minister Modi made the inaugural address for India Global Week (#betherevival) his clarion call was that India was ready to receive investors. He highlighted the fact that India has attracted foreign investment of more than $20 billion between April and July last year as the pandemic raged – yet again reaching a record high in FDI. Foreign investment inflows to India in 2019-20 stood at $74 billion, which was an increase of 20 per cent over the previous year.

Even as the number of coronavirus cases grew in India, the pandemic provided insurance companies an opportunity to innovate and serve the evolving needs of the Indian population, as well as for global players to zero in on India as an insurance investment destination.

Sadly, however, thanks to its billion-plus population, most of India continues to be underinsured when it comes to health. That being said, the health insurance sector in the country has proven to be resilient to the virus. The coronavirus pandemic has driven demand for health insurance, in an otherwise under-penetrated insurance market.

FDI goes up to 74%

Finance Minister Nirmala Sitharaman in her budget speech for 2021-22 said the government would allow foreign direct investment of up to 74% in insurance entities, up from 49% currently, clearing the way for "foreign ownership and control with safeguards".

The change could attract investments from international insurers, industry sources said, many of which have existing joint-venture operations in India, including from American International Group and Britain's Prudential Plc.

Take up of life and health insurance products is low in the country of 1.3 billion people but is expected to grow. The country's investment promotion agency, Invest India, expects the insurance market to be worth around $250 billion by 2025.

In a statement to Reuters, lobby group U.S.-India Business Council (USIBC), part of the U.S. Chamber of Commerce, said New Delhi's decision will help American insurance companies enhance financial inclusion in India.

"For foreign investment to flow, though, management and control regulations need to strike the right balance between prudent safeguards and owners' needs," said Nisha Biswal, President of the USIBC.

Private players join the party

India's state-run Life Insurance Corporation dominates India's life insurance market, but private players have rapidly grown in size.

ICICI Prudential Life Insurance - a joint venture between ICICI Bank and Prudential - last year said its assets under management crossed 2 trillion rupees ($27.4 billion). Prudential said in August India was a market where it had "significant investment appetites for growth".

More relaxed rules for foreign investment in insurance will also help some Indian insurers to attract capital and boost their businesses after a slowdown caused by the COVID-19 pandemic.

"The imperativeness of the life insurance sector in the economy has gained paramount importance in the aftermath of COVID," Niraj Kumar, Chief Investment Officer of Future Generali India Life Insurance, an Indian JV of Italy's Assicurazioni Generali SpA, said in a statement.

"The bold step ... will provide an immediate backstop in terms of capital for growth and improve the insurance penetration and financial inclusion in the economy."

- With inputs from Reuters