Budget 2025: Govt allows 100% FDI in insurance, easing foreign entry

Nearly two and a half decades after the liberalisation of Indian insurance, Finance Minister Nirmala Sitharaman, in her eighth Budget speech on Saturday, announced the opening up of the sector to 100 per cent foreign direct investment (FDI), up from the previous limit of 74 per cent.

 

Industry insiders believe that this move will provide foreign insurers, who previously had to partner with an Indian entity to establish a presence in India, a clear and simplified pathway to set up shop in the country.

 

“This enhanced limit will be available for those companies that invest the entire premium in India. The current guardrails and conditionalities associated with foreign investment will be reviewed and simplified, Sitharaman said in her speech.

 

 

According to investment norms, insurers in India typically have their corpus invested in the country. However, there is a window available to invest overseas as well. As a result, a detailed review of the fine print, particularly regarding the requirement that the entire premium must be invested in India, is essential, industry experts said.

 

The opening up of the insurance industry to 100 per cent FDI comes at a time when the insurance regulator has been advocating "Insurance for All" by 2047, a goal that requires significant capital inflows into the sector through the entry of new players or capital expansion in existing companies.

 

“Foreign insurers, who perhaps were looking to enter the Indian market, will not have to hunt for an Indian partner now and can directly set up shop, thereby significantly reducing the time for entry into the Indian insurance market by at least two years, saving the entire joint venture negotiations and signing-up time,” said Joydeep K Roy, partner and leader, India Financial Services Advisory, PwC.

 

“Investment into the sector will not flow automatically because of 100 per cent FDI, as a lot of it will depend on how they view the Indian insurance sector proposition. Additionally, insurance startups will now have greater access to funding from foreign private equity (PE) firms, which can fully fund startups in this space,” Roy said.

 

In December 2014, the government raised the FDI limit in the sector from 26 per cent to 49 per cent. Nearly seven years later, the government further increased the limit, allowing FDI investments of up to 74 per cent. 

 

The jury is divided on whether this move has led to the expected inflow of investments. According to industry experts, without full autonomy over business operations, and given the challenges of finding an Indian partner who aligns with the company’s culture and ethos, attracting inflows into the sector has become difficult.

 

According to government data, since 2015, when the government liberalised the FDI norms in the sector, it has received close to Rs 54,000 crore as FDI.

 

“We have too few (insurance) players for a country and economy of our size. This scarcity is partly due to the challenge global insurers face in finding suitable local partners. With just over 60 insurers operating in both life and general insurance sectors, and many of them functioning as joint ventures, the shortage of capable and willing local partners is evident. Permitting 100 per cent FDI would be a game-changer, given its potential to address this issue”, said Anup Rau, MD & CEO, Future Generali India Insurance Company.

 

Currently, only in a handful of companies, the foreign partners have increased stakes to 74 per cent. Ageas Insurance International has hiked its stake to 74 per cent in Ageas Federal Insurance. In Aviva Life Insurance, the foreign insurer stake has gone up to 74 per cent, while Italian insurer Generali has upped its stake to over 72 per cent in Future Generali Life.

 

Swiss insurer Zurich Insurance has acquired a 70 per cent stake in Kotak Mahindra General Insurance. Recently, Munich-headquartered Allianz SE said it would be exiting its India joint venture with Bajaj Group in which it held a 26 per cent stake each in the life and general insurance companies, since its inception in 2001. However, it has also indicated that it remains committed to the Indian insurance market, and with 100 per cent FDI now allowed, it can establish its own operations.