Finance Minister Nirmala Sitharaman has recently put forward a Bill in Rajya Sabha that seeks to amend the Insurance Act making way for 74% foreign direct investment (FDI) in the sector.
The Union Cabinet has given a green signal for amendments in the Insurance Amendment Bill 2021. Finance Minister Sitharaman introduced the Bill for amendments in the Insurance Act, 1938.
Presently, the act allows 49% FDI limit in the life and general insurance with ownership and management control with Indian.
Sitharaman presenting the Union Budget for 2021-22 had said, "I propose to amend the Insurance Act, 1938 to increase the permissible FDI limit from 49 per cent to 74 per cent in insurance companies and allow foreign ownership and control with safeguards."
As per the new structure, the majority of directors on the board and key management persons would be resident Indians, with at least 50 per cent of directors being independent directors, and specified percentage of profits being retained as a general reserve.
She also added that an investor charter would be introduced for investor protection, as a right of all financial investors across all financial products.
Increase in FDI will help improve life insurance penetration in the country. Life insurance premium as a percentage of GDP is 3.6% in the country, way below the global average of 7.13%, and in case of general insurance, it is even worse at 0.94% of GDP, as against the world average of 2.88%.
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