Privatisation and Foreign Direct Investment (FDI) in Insurance Sector

Privatisation and foreign direct investment (FDI) have been seen by policymakers, in India and abroad as key components of India’s reform program.

Indian Parliament on 22 March 2021 passed the Insurance Amendment Bill 2021 to increase the foreign direct investment (FDI) limit in the insurance sector to 74% from 49%. With the Union Cabinet approving amendments to the Insurance Act of 1938, the process of implementing the next stage of reducing public control over Indian insurance began. With the amended legislation, increasing the FDI cap would permit foreign control over a majority of insurance companies operating in the country.

Impact of hike in FDI limits:

A hike in FDI limits will positively impact various stakeholders in the insurance ecosystem – insurance companies can access more capital which will strengthen their financials; existing promoters can unlock better value from their investments in existing insurance ventures; policyholders will be offered a wider array of competitively priced and technologically innovative products; and the insurance sector as a whole will witness greater competition, job creation and transparency.  The financial year 2022-23 saw the total FDI inflows in the country at $70.97 Bn. Out of which total FDI equity inflows stood at $46.03 Bn. In the financial year 2023, Singapore accounted for about 30 percent of total FDI, the highest FDI equity inflow to India, which was valued at over 17 billion U.S. dollars, followed by Mauritius with over six billion dollars. The huge amount of capital, which comes through FDI not only enables insurance companies to improve their basic insurance infrastructure (manpower and business operation) but also allows them to develop innovative insurance products and services.

Currently, India’s Insurance industry is one of the premium sectors experiencing upward growth. The industry has undergone numerous transformations in terms of new developments, modified regulations, proposals for amendments, and growth in 2022. These developments have opened new avenues of growth for the industry while ensuring that insurers stay relevant with changing times and the latest digital disruptions. According to Life Insurance Council data, in April-November 2023, life insurers’ new business premiums grew to Rs. 211,690.65 crore (US$ 25.38 billion),  The premium in March 2023 for the private life insurance industry grew at a healthy pace of 35% on a year-on-year basis and 20% for FY23.Life insurance firms collected 18% more premiums in FY23 compared to the year before. Life insurers collected Rs. 3.71 lakh crore (US$ 44.85 billion) as the first-year premium in FY23 as against Rs. 3.14 lakh crore (US$ 37.96 billion) in FY22, according to the latest IRDAI data. Driven by a pick-up in health and motor insurance segments, the non-life insurance industry has grown by 16.4% in FY23 compared to 11.1% in the previous year.

The growing privatisation of the business has also been accompanied by a shift in the form of regulation away from direct control through public ownership of institutions in the life and general insurance sectors to self-regulation based on Insurance Regulatory and Development Authority of India or IRDAI norms and guidelines and capital adequacy requirements. In August 2021, PhonePe announced that it had received preliminary approval from IRDAI to act as a broker for life and general insurance products. As a result, the company can now offer insurance advice to its 300+ million users. In September 2021, ZestMoney raised US$ 50 million to enter new business opportunities in the insurance sector. In November 2021, the Competition Commission of India (CCI) approved HDFC Life Insurance’s acquisition of 100% shareholding in Exide Life Insurance and Willis Towers Watson acquired the remaining 51% shares in WTW India, taking the company’s holding in WTW India to 100%. Further, Acko, a digital insurance start-up, raised US$ 255 million in funds, taking the company’s valuation to ~US$ 1.1 billion.

Among the private players, SBI Life, HDFC Life, and ICICI Prudential Life led the industry in premium collection. SBI Life collected Rs. 29,587 crore (US$ 3.57 billion) premium in FY23 while HDFC Life and ICICI Prudential Life received Rs. 28,876 crore (US$ 3.48 billion) and Rs. 16,921 crore (US$ 2.04 billion), respectively. In FY24 (until September 2023), non-life players’ saw a premium income increase by 14.86% year-over-year to Rs. 1,43,802 crore (US$ 17.29 billion) due to strong demand for health and motor policies.

The insurance industry comprises a total of 57 insurance companies in India. For Life Insurance Business there are 24 companies recognised by IRDA, similarly for non-life insurance 34 companies got the approval from IRDA. Life Insurance Corporation of India is the only public sector company among the life insurers.

References: Insurance Regulatory and Development Authority of India (IRDAI), Economic Survey 2022-23, and Media Reports.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet; and is subject to changes. Please read the related product brochures for exclusions, terms and conditions, warranties, etc. carefully before concluding a purchase.

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