Cabinet clears “74% FDI in Insurance Sector”

What is the news?

The Union Cabinet has approved a proposal to amend the Insurance Act, 1938. It will increase the foreign direct investment (FDI) limit in the insurance sector to 74% from 49%.

Conditions: The increase in the foreign direct investment(FDI) limit in the insurance sector comes with safeguards such as:

• The majority of directors on the Board and key management persons in health and general insurance companies would be resident Indians. At least 50% of directors will be independent directors.
• The government will also specify a particular percentage of profits to be retained as a general reserve.

Significance of this move: Raising the foreign investment limit(FDI) in the insurance sector may provide the following benefits:

• Improve capital availability in the insurance sector.
• Help in developing the insurance industry as a channel for generating durable funds for the creation of long-term assets.
• An increase in competition in the sector will help in lowering the cost of insurance products.
• It would benefit small insurance players or the ones where the sponsors don’t have the ability to infuse more capital.
• Improve Insurance Penetration in the country.

About Insurance Penetration:

• Insurance penetration is an indicator of insurance sector development within a country. It is the ratio of total insurance premiums to the GDP in a given year.
• Currently, Insurance penetration stands at just 3.71% of the GDP in the country.

Source: Indian Express