Government Notifies Rules for 74% FDI in Insurance Sector

What is the News? The Finance Ministry notified the Indian Insurance Companies (Foreign Investment) Amendment Rules, 2021. These rules will apply to all insurers irrespective of the stake held by the foreign partner.

These rules will give an effect to increased FDI limit in the Insurance Sector to 74% from 49%.

Key Provisions of the Rules:

• Total Foreign Investment in an Indian Insurance Company shall mean the sum total of direct and indirect foreign investment by Foreign Investors.
  • 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.
• Any Indian insurance company with foreign investment exceeding 49% should have half of its board of directors as an independent director.
  • But if the chairperson of its board is an independent director then at least one-third of its board shall comprise independent directors
• Indian insurance companies, with foreign investment, should have the majority of their directors and key management persons as resident Indians.
  • There should be at least one resident Indian among the three key persons— chairperson of the board, managing director (MD), and chief executive officer (CEO).
• Every Indian insurance company having foreign investment shall comply within one year with the requirements of these provisions.

Note: Insurance penetration in India is currently at 3.7% of the gross domestic product(GDP) compared to the world average of 6.31%.

Source: The Hindu