When the Ministry of Finance suggested raising the foreign direct investment (FDI) cap in domestic insurance companies from 74% to 100%, stocks of insurance companies continued to rise.
FinMin also recommended allowing insurers to handle all kinds of insurance. This move, if allowed, will enable insurers to offer health, life, and general insurance products under a single organization. Currently, life insurers cannot sell health insurance, and vice versa.
Additionally, the Ministry suggested that the current Rs 5,000 crore minimum net-owned funds for foreign re-insurers be lowered to Rs 1,000 crore. On an individual basis, the insurance regulator, IRDAI, would also have the authority to impose reduced capital requirements on businesses that service underserved areas.
“The proposed amendments primarily focus on promoting policyholders’ interests, enhancing the financial security of the policyholders, facilitating the entry of more players in the insurance market leading to economic growth and employment generation, and enhancing efficiencies of the insurance industry,” according to the Finance Ministry.
As news of the development broke, the insurance stocks were booming. Over the previous week, insurance companies including The New India Assurance Company, LIC, General Insurance Corporation of India, and others have seen up to 15.5% profits. With increases of 0.5 to 2 percent, all general insurance equities are currently trading in the positive zone.
Due to regulatory restraints that tempered enthusiasm on the markets, life insurance companies like HDFC Life, SBI Life, and Max Financial have not engaged in the celebration during the past week.
IRDAI Chairman Debasish Panda has previously stated that granting a uniform license and permitting 100% FDI in insurance will allow foreign companies to independently organize their operations, provide global experience, and improve capacity and technology. Panda is concerned that if the insurance business continues to rely solely on domestic capital, a “crowding out effect” may occur.
