In a bid to attract more investors, the government is reportedly mulling to permit 100% foreign direct investment (FDI) in insurance intermediaries. According to sources, this move is expected to give a boost to the sector and attract more funds. Some of the intermediary services in the insurance business include third-party administrators (TPAs), loss assessors, broking firms, surveyors, etc.
As of now, the government allows 49% FDI in the insurance sector that includes the above-mentioned insurance intermediaries. However, 100% foreign investment is allowed in other financial intermediary services across the country. This is one of the main reasons why representations have been made to the government to de-link insurance intermediaries from the FDI cap.
There is a major need to strengthen the insurance distribution networks since weak networks have adversely impacted insurance penetration in the country. One of the ways to strengthen the distribution system is by attracting foreign investments in the sector. Removing the FDI cap on insurance intermediaries will allow foreign companies to launch fully owned distribution networks and other services in the country.
According to an industry report released in June 2017, India has insurance penetration of just 3.42% against the global average of 6.2%. India has about 17% of the world’s population, but it accounts for less than 1.5% of the world’s total insurance premiums. Various factors like high cost of regulatory compliance, lack of awareness, etc. are said to be the main reasons behind the poor level of insurance penetration in India.
The report maintained that a mere 1% rise in insurance penetration will bring down uninsured losses by about 13%. These uninsured losses require additional investments to the tune of 2% of the country’s GDP. Despite the government’s objectives to promote insurance penetration, the existing regulatory framework often makes it difficult to achieve this goal.
In addition to de-linking insurance intermediaries from the FDI cap, the government is also likely to focus on the regulatory framework to bring down the cost of compliance for insurance companies.