- The government expects foreign direct investment to pick up pace in the insurance sector, as most regulations have been amended to give effect to 74 per cent FDI limit.
- With the government defining the management and control criteria for Indian insurance companies through a gazette notification, the Finance Ministry expects the sector to be a key recipient of foreign capital.
GS-III: Indian Economy (Growth and Development of Indian Economy, Mobilization of Resources, Capital Market)
Dimensions of the Article:
- About the new rules for Increased FDI in Insurance Sector
- Benefits of the new rules
- About Insurance Regulatory and Development Authority of India (IRDAI)
About the new rules for Increased FDI in Insurance Sector
- Parliament had passed the Insurance Amendment Bill 2021 to increase the FDI limit in the insurance sector to 74% from 49%.
- The Ministry of Finance has notified ‘Indian Insurance Companies (Foreign Investment) Amendment Rules, 2021’.
- Management Persons to be Resident Indian Citizens: For an Indian insurance company having foreign investment – majority of its directors, key management persons, and at least one among the chairperson of its Board, its managing director and its chief executive officer – will be a resident Indian citizen.
- According to the notification Total foreign investment would mean the sum of both direct and indirect foreign investment. Direct investment by a foreigner will be called Foreign Direct Investment, while investment by an Indian company (which is owned or controlled by foreigners) into another Indian entity is considered as Indirect Foreign Investment.
Benefits of the new rules
- The increase in foreign ownership to 74% can result in inclusion of global best practices in terms of insurance products going forward. It will also help in bringing down the cost of insurance products in India.
- It is good for Indian Promoters, it will let them keep control of management and board, the additional capital inflow will help them with funds to push for growth.
- It will benefit small insurance players or the ones where the sponsors don’t have the ability to put in more capital and hence it will benefit in strengthening them and increasing competition across the industry.
- It is likely to help local private insurers grow fast and expand their presence across India, which has one of the lowest insurance penetration levels globally.
About Insurance Regulatory and Development Authority of India (IRDAI)
- The Insurance Regulatory and Development Authority of India or the IRDAI is the apex body responsible for regulating and developing the insurance industry in India.
- It is an autonomous body established by an act of Parliament known as the Insurance Regulatory and Development Authority Act, 1999. Hence, it is a Statutory Body.
- The IRDAI is headquartered in Hyderabad in Telangana. Prior to 2001, it was headquartered in New Delhi.
- Functions of IRDAI:
- Its primary purpose is to protect the rights of the policyholders in India.
- It gives the registration certificate to insurance companies in the country.
- It also engages in the renewal, modification, cancellation, etc. of this registration.
- It also creates regulations to protect policyholders’ interests in India.
- Composition of IRDA
- The Insurance Regulatory Development Authority (IRDA) Act, 1999 specifies the composition of authority which consists of 10-member team appointed by the government of India which includes.
- One chairman
- Five whole time members
- Four part time members
-Source: Indian Express