Centre likely to relax the board regulations for foreign insurers

The Union government is likely to allow foreign insurers to appoint a majority of non-resident board members, along with other key managerial personnel (KMPs), once the foreign direct investment (FDI) cap is raised to 100 per cent from the current 74 per cent, two senior government officials have confirmed.

 

This is a key demand from the US government and American insurance industry groups, with both the United States Trade Representative (USTR) and the Coalition of Services Industry (CSI) recently raising the issue.

 

“The insurance Bill is ready from our end and is likely to be introduced in the upcoming Monsoon Session. We plan to ease provisions related to the appointment of directors. We have no objection if a US national or any foreign professional takes on a leadership role,” said a senior government official. “Foreign insurance companies are already fully regulated by Irdai (Insurance Regulatory and Development Authority of India), and these changes will not result in any major structural or operational overhaul.”

 

The official stressed that while the reforms are not intended to open the floodgates to foreign control, they signal a more welcoming approach to global participation in leadership roles. 

 

The second official added that, even with permission for majority non-resident boards, foreign insurers are still expected to rely heavily on non-resident Indian professionals to fill such positions. “There are many Indian professionals currently working in countries like the US and the UK, and we expect some of them to return and contribute to the Indian insurance sector. Our aim is to create a more investor-friendly environment for foreign insurance companies to operate in India. This will undoubtedly benefit the Indian insurance market, which holds enormous potential but continues to lag in terms of penetration,” the official said.

 

Union Finance Minister Nirmala Sitharaman, in her Budget speech for FY26, promised to raise the FDI limit in the insurance sector to 100 per cent, with the condition that this would be available only to companies investing the entire premium within India. “The current guardrails and conditionalities associated with foreign investment will be reviewed and simplified,” she had said, without giving further details.

 

When India raised the FDI limit in the insurance space from 49 per cent to 74 per cent in 2021, it introduced several safeguards to ensure continued Indian control. These included requirements for at least 50 per cent of board members to be resident Indian citizens, and that at least one KMP — such as the chief executive officer, managing director, or principal officer — must be a resident Indian. Firms were also required to remain “Indian controlled” in terms of board and management decisions, and faced restrictions on capital repatriation, dividend payouts, and enhanced regulatory disclosures.  

According to Sonam Chandwani, managing partner at KS Legal and Associates, “100 per cent FDI is allowed in various sectors such as telecommunications, information technology, and manufacturing. As per the Companies Act, at least one director must be an Indian resident. There are no specific restrictions on appointing a foreign national as a director or KMP.”

 

“However, if the appointments exceed prescribed thresholds, prior approval from the relevant authorities may be required. This move will certainly boost the insurance sector and facilitate the adoption of global talent, thereby helping implement international best practices,” said Chandwani. 

 

While welcoming the proposal to raise FDI in insurance to 100 per cent, the USTR, in its latest Foreign Trade Barriers report, noted that it is still unclear whether India will remove the safeguards instituted in 2021. “These safeguards require a majority of board members to be Indian residents and, if an insurer is incorporated or domiciled outside of India, to maintain a higher solvency requirement for foreign-invested insurers. These requirements also apply to any insurer incorporated in India that has at least 33 per cent of its capital owned by investors domiciled outside India or 33 per cent of the members of the governing body domiciled outside India,” the report stated.

 

Ahead of the April 2 announcement on reciprocal tariffs, the US Coalition of Services Industry echoed similar concerns. “While the process to amend the laws and rules on foreign investment limits is expected to receive legislative approval, it is unclear how India will review the current conditionalities placed on foreign insurance companies and investors or if the government intends to introduce new regulatory requirements for investors that increase their investment,” it said. 

For continuity and change

 

• The FY26 Budget proposed raising the FDI cap in the insurance sector to 100%
• In 2021, India had increased the limit from 49% to 74%
• However, it included safeguards to ensure Indian control
• These required at least 50% of board members to be resident Indian citizens and mandated at least one resident key managerial personnel