The Union cabinet on Wednesday has approved changes to the Insurance Act for increasing the foreign direct investment (FDI) limit to 74 per cent from the present 49 per cent.
The changes will be introduced in Parliament for approval. Once the Parliament approves the changes, the process to bring an applicable framework would start.
A Bill to amend the Act is likely to be introduced in the ongoing Budget session of Parliament itself.
Benefit
Raising the foreign investment limit in the insurance sector is expected to improve capital availability and foster competition in the sector.
It will also develop the insurance industry as a big channel for generating durable funds for creation of long-term assets.
The increase in FDI will help increase penetration of products in an underserved market.
It will also bring in global best practices, besides helping lower the cost of products due to greater competition.
FDI records in past
As of March 2020, average foreign investment in 23 life insurance companies was 37.41 per cent.
Only in nine private life insurers, the foreign investment has touched 49 per cent.
In 21 private general insurers, average FDI stood at just 28.18 per cent.
In the standalone health insurance industry, FDI is 30.22 per cent/ For and for the overall non-life industry, average FDI stood at 20.22 per cent.
Contribution to GDP
Life insurance premium as a percentage of GDP is 3.6% in the country, way below the global average of 7.13%, and in case of general insurance, it is even worse at 0.94% of GDP, as against the world average of 2.88%
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