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The changing Insurance sector

Insurance sector in India witnesses wave of changes


On December 2, 2019, a letter was sent by the Insurance Regulatory and Development Authority of India at the direction of the government to various stakeholders including insurance companies and others.The letter called for suggestions on raising the foreign direct investment (FDI) limit in insurance sector to 74% next budget, which is currently 49%.


Last year, the government had also enhanced the FDI limit in insurance intermediaries to 100%. In 2015, the government had raised FDI in insurance under the automatic route to 49% from 26%. However, it is important to note that control had remained with Indian residents as per the 2015 Insurance Act amendment that raised the overseas limit to 49%. Now, It can be clearly observed that government is keen to promote foreign control in overseas sector.

The benefit of increase in FDI is by way of increased funding from foreign investors which enables the Indian insurance companies and firms in launching the Initial Public Offer in securities market.

In the July budget, finance minister Nirmala Sitharaman had announced that the government will examine suggestions from various stakeholders to further open up FDI in the insurance sector.

However, increase in FDI limit to further 74% would require stricter regulations in respect of solvency of foreign firms so that the Indian business is unaffected by any challenges faced by the foreign parent entity and that they survive to meet the long-term contracts liability, especially in respect of Life insurance business.

For instance, China's banking regulating body has reported the country’s insurance sector as stable, with the solvency ratio within a reasonable range.


Where deliberations of increasing FDI limit are going on, at the same time, Indian insurance companies are facing tough times on account of crop insurance which is no longer a profitable venture, in case of Pradhan Mantri Fasal Bima Yojana-flagship crop insurance scheme launched by Narendra Modi-led government in 2016.


As per recent reports, claims under this scheme are exceeding premiums collected, due to heavy rains leading to huge floods ruining the crops. The Yojana is under a public-private partnership scheme.


Besides the above updates, Insurance sector is also expanding in the online space. India isn’t the first country one might think of when thinking about insurance technology, but a company named Digit Insurance, India’s first digital general cover provider, is attracting the attention of the market.


As per recent news, TVS Capital Funds, A91 Partners and Faering Capital, are planning to invest approximately $100 million in Digit. In 2018-19, its first full year of operations, the company recorded a premium income of $172 million. Digit competes with players like Acko, which is backed by investors like Flipkart’s Binny Bansal.


Indian insurance sector is experiencing multiple ups and downs. The sector has got a lot of potential in terms of market. It will be interesting to observe whether government will be able to achieve its target of growing the sector with the proposed changes. Hope the changes pave the way to Insured India.


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©2019 by Equialpha Wealth Advisers