FDI Flows In Insurance Maybe Just A Fraction Of Potential

Mumbai: While, India’s greenlight for 100 per cent foreign direct investment limit (FDI) in the insurance sector may have the potential to bring in Rs 2.8 lakh crore at market value, the actual amount that may flow in would be just a small fraction of it given that foreign entities wanting to set up shop would need Indian partners with strong distribution channels or having a large customer base.

Going by the past experience when the FDI limit was raised to 74 per cent in 2021, allowing foreign investors to own majority stakes and control management, only three to four companies of the roughly 50 life and general insurers such as Generali Central, Generali Central Life and Aviva Life Insurance have foreign joint venture partners holding the upper 74 per cent FDI limit. In two insurance companies namely Zurich Kotak and Ageas Federal Life insurance, the foreign ownership is at 70 per cent, while for most other insurers it remains at 49 per cent or 26 per cent.

Says Ashvin Parekh, managing director, Ashvin Parekh advisory services LLP, “When FDI limit was raised from 49 per cent to 74 per cent in 2021, it was said that the sector has the potential to attract almost Rs 2.30 lakh crore at market value on paper but it translated into mere Rs 22000-23000 crore of FDI inflows. Also if you see in the last three years, while more than 30 companies have applied for insurance license to the IRDAI, only three companies have been granted a license.”

The Minister of State for Finance Pankaj Chaudhary vide a reply to an unstarred Question No.877 in the Rajya Sabha on December 3, 2024, said that the present level of foreign equity in the insurance industry at Rs31,365.57 crore (as at March 31, 2024) is only 32.67 per cent against the permissible limit of 74 per cent.

Says Kamlesh Rao, MD&CEO, Aditya Birla Sun Life Insurance, “Even when FDI moved from 51 per cent to 74 per cent, penetration didn’t change meaningfully — and it didn’t bring a surge of foreign capital either. But that was less a commentary on capital and more a reflection of how this market actually works. Our growth model has been built over decades on the strength of deeply-entrenched distribution ecosystems — agency networks, bancassurance partnerships that for many players contribute 50% or more, and long-standing institutional relationships. These are not easily replicated overnight, even with deeper pockets. So, while the move may encourage more global players to explore India, translating that interest into meaningful scale will depend on how effectively new entrants can navigate this distribution landscape.”

The Parliament on Wednesday passed a bill to raise foreign direct investment in the insurance sector to 100 per cent from 74 per cent. The 2025 Sabka Bima Sabki Raksha Amendment of Insurance Laws Bill seeks to amend the 1938 Insurance Act, the 1956 Life Insurance Corporation Act and the 1999 Insurance Regulatory and Development Authority Act. Its amendments would strengthen the powers of the regulator, create a dedicated Policyholders’ Education and Protection Fund, paves the way for deeper capital inflows, enhanced competition, and a broader range of innovative products for customers and policyholders.

Meanwhile, India’s move to lift investment caps on the insurance industry also applies to the $177 billion pension fund sector, paving the way for 100 per cent foreign ownership. The measure is an “enabler” that will help draw interest from global investors in the pension fund sector over time, Sivasubramanian Ramann, chairman of the Pension Fund Regulatory and Development Authority, said in an interview on Wednesday.