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FDI in Insurance Sector

The Department for Promotion of Industry and Internal Trade has amended the Foreign Direct Investment Policy 2017 on Insurance Sector and released a Press Note dated 21^st February 2020. The changes will come into effect on the date of the Foreign Exchange Management Act (FEMA) notification. The main amendment is that the FDI cap has been increased from 49% to 100% for Intermediaries and Insurance Intermediaries. It remains the same (49%) for Insurance companies.

The following are the included entities under Intermediaries and Insurance Intermediaries:

• Insurance Brokers
• Re-Insurance Brokers
• Insurance Consultants
• Corporate Agents
• Third-Party Administrators
• Surveyors and Loss Assessors

The Foreign Equity Investment cap of 100% shall apply to the Intermediaries and Insurance Intermediaries. The previous condition of Indian owned and Controlled will no longer apply in this case. The foreign direct investment proposals will be allowed under the automatic route provided they are verified by the Authority. The foreign investment in intermediaries and insurance intermediaries will be governed by the same terms as provided under rules 7 and 8 of the Indian Insurance Companies (Foreign Investment) Rules 2015.

Entities with primary business outside Insurance Area

For cases where an entity whose primary business is outside the insurance area, is allowed by the Authority to function as an insurance intermediary, the foreign equity investment cap of 100% will apply, provided the revenues of such entities from the primary (non-insurance related) business remain above 50% of their total revenues in any financial year.

Mandatory undertaking by an Insurance Intermediary

The following are the mandatory undertakings by an Insurance Intermediary in which foreign investors have majority shareholding:

1. Should be incorporated as a limited company under the Companies Act 2013.
2. At least one of the following persons– either Chairman of Board of Directors or Chief Executive Officer or Principal Officer or Managing Director of the Insurance Intermediary should be an Indian Citizen residing in India.
3. Prior permission of the Authority has to be taken for repatriating dividend.
4. Latest technological, managerial and other skills need to be brought in.
5. Payments to the foreign group/promoter/subsidiary/interconnected or associate entities should not be made beyond necessity and should be allowed by the Authority.
6. Disclosures of all payments made to its group/promoter/subsidiary/interconnected or associate entities need to be made in the given format (to be specified by the Authority).
7. Composition of the Board of Directors and People in key management needs to be as specified by the concerned regulators.

The rest of the conditions and rules for Foreign Direct Investment Policy on Insurance Sector remain the same. The conditions for Insurance companies regarding foreign investment, needing approval from IRDA (Insurance Regulatory and Development Authority of India), governing FEMA regulations and Foreign Portfolio Investors Regulations all remain the same.

This amendment is aimed at ushering in new insurance products and selling strategies to the Indian market and also making India a more attractive FDI destination. The offshore strategic partners can now have more flexibility and control over corporate decisions and make a greater impact on the Indian market.

India with its huge population and very low insurance coverage percentage has always been eyed by the foreign investors in the Insurance sector. With the expected increase in the influx of foreign investments, it will help many mushrooming enterprises in the Insurance sector.

Also, events happening in far-away countries are now impacting Indian manufacturing companies as well, for which the Indian Insurance companies may fall short in providing cover. With increased FDI in the Insurance sector, it will imply modern risk management and better insurance coverages against natural disasters, biological attacks and other unforeseen events occurring all over the world.

Please also read the guide on Foreign Direct Investment in India