Centre approves 100% FDI in insurance sector through automatic route; key things to know

The central government, on Saturday, May 2, said that it has increased the cap of foreign direct investment (FDI) in the insurance sector to 100% via the automatic route.

If approved by the Insurance Regulatory and Development Authority of India, foreign investors, including portfolio investors, will be permitted to invest up to 100% of the total paid-up equity capital of Indian insurance companies, the press note read.

Furthermore, the 100% FDI cap has been extended to an array of insurance intermediaries, including insurance brokers, re-insurance brokers, insurance consultants, corporate agents, third-party administrators, Surveyors and Loss Assessors, managing general agents, insurance repositories, and such other entities, as may be notified by the Insurance Regulatory and Development Authority of India from time to time.

FDI inflow in LIC

However, the Department for Promotion of Industry and Internal Trade (DPIIT) capped the FDI inflow in the country’s largest life insurer, Life Insurance Corporation of India (LIC), at 20% of its total paid-up equity capital.

Conditions of the 100% FDI cap

“The foreign investment up to one hundred percent of the total paid-up equity of the Indian Insurance Company shall be allowed on the Automatic Route, subject to approval/verification by the Insurance Regulatory and Development Authority of India,” the press note added.

Any increase in foreign investment in a domestic insurance company shall be in accordance with the pricing guidelines specified by the Reserve Bank of India under the FEMA Regulations, it noted.

The notification stated that a domestic insurance company, with foreign investment, should ensure that either the chairperson of the board, the managing director, or the chief executive officer is an Indian citizen.

It also noted that banks whose primary business is outside the insurance sector but also function as insurance intermediaries will follow the foreign equity rule of their main sector. However, this is subject to the condition that their revenue from their primary business (non-insurance related) remains above 50% of their total revenue in any financial year.

Furthermore, an insurance intermediary with a majority foreign investor shareholding should be incorporated as a limited company under the provisions of the Companies Act, 2013.

It will also be required to disclose all payments made to its group, promoter, subsidiary, interconnected, or associate entities. Additionally, it will be required to bring in the latest technological, managerial, and other skills.