Regulatory, customer pattern changes nudge foreign insurers' India interest

A slew of foreign insurers have already either bought stakes in existing insurance companies, or formed a new joint venture to tap the potential of the Indian insurance market

Over the past two years, the Indian insurance industry has seen increased interest from foreign insurers, driven by regulatory changes, relaxed FDI norms, shifting customer preferences, and the sector’s strong growth potential, experts say. As a result, a slew of foreign insurers have either bought stakes in existing insurance companies, or formed a new joint venture to tap the potential of the Indian insurance market.

 

“Currently, the insurance market is at an inflection point. There is increasing interest among foreign insurers to enter the Indian market due to the changes in the regulatory environment which has made insurance easier to purchase and change the growing middle income customer base in the country. The call for Insurance for All by 2047 is also creating waves among the international companies along with the announcement of the revised FDI norms,” said Debashish Banerjee, partner and leader, Deloitte India.

 

According to a Crisil Intelligence report, Rs 27,379 crore in FDI has flowed into the insurance sector since FY21, when the FDI limit was increased to 74 per cent. In comparison, between FY14 and FY21, Rs 34,610 crore in FDI was recorded when the limit was 49 per cent, and between FY2000 and FY14, Rs 20,858 crore came in when the limit was 26 per cent.

 

Additionally, the report mentioned that 20 of the 26 life insurance companies in India had a foreign partner as of March 2024, with four partners holding a 74 per cent stake and five holding between 49 per cent and 74 per cent. In the non-life sector, of the 25 general and health insurers, 13 have a foreign partner, with five holding a stake of 49 per cent or more. In the specialised health insurance segment, of the eight companies, three have a foreign partner, with two holding 49 per cent or more.

 

In the Union Budget 2025-26, Finance Minister Nirmala Sitharaman proposed increasing the foreign direct investment (FDI) limit in the insurance sector to 100 per cent from the current 74 per cent with the caveat that the enhanced limit would be available only to those companies which invest the entire premium in India.

 

“Legislative changes for 100 per cent FDI will come in due course. But this alone cannot take care of the capital needs of the sector," pointed out Ajay Seth, chairman of the Insurance Regulatory and Development Authority of India (Irdai) last month at the Business Standard BFSI Summit. "The industry’s own capital is about Rs 3.5 trillion. FDI is welcome. All those who have come in are welcome, and they have contributed. But the significant part is domestic capital. Of the Rs 3.5 trillion, FDI is only Rs 80,000 crore-Rs 90,000 crore. And all is not on the balance sheet of the insurance companies. Some of it has gone to pay previous shareholders.”

 

Recently, Mahindra Group and Canada based Manulife announced plans to enter the Indian life insurance segment with a 50:50 joint venture with a total commitment of Rs 3,600 crore from each of the shareholders. Similarly, UK-based Prudential Group has partnered with HCL Group to establish a standalone health insurance company. Angel One has announced plans to enter a joint venture with LivWell to establish a digital-first life insurance company.

 

One of the major deals announced in the industry was the 50:50 joint venture between Jio Financial Services and Allianz Group to enter the reinsurance market. Allianz Group had earlier exited their two insurance joint ventures with Bajaj Group, with the latter acquiring Allianz's entire stake for Rs 24,180 crore.

 

Additionally, IndusInd International Holdings (IIHL) also completed its acquisition of Reliance Capital, which owns two insurers — Reliance Nippon Life Insurance and Reliance General Insurance.

 

Swiss insurer Zurich Insurance had also acquired a 70 per cent stake in Kotak Mahindra General Insurance for $670 million from Kotak Mahindra Bank.

 

Currently, there are 27 life insurance companies, 24 general insurance companies and 7 standalone health insurance firms.