FDI cap in insurance raised to 49 pc: Chidambaram

After allowing FDI in multi-brand retail, the government today approved a hike in foreign investment cap in insurance sector to 49 per cent, meeting a long standing demand of the industry and its regulator IRDA.

The Cabinet, headed by Prime Minister Manmohan Singh, approved an amendment to the Insurance Laws (Amendment) Bill, 2008, that will raise the Foreign Direct Investment (FDI) in the sector from 26 per cent to 49 per cent. Announcing the decision taken by the Cabinet, Finance Minister P Chidambaram said the amendments will be presented in the ensuing Winter session of Parliament.

Chidambaram said though the Parliamentary Standing Committee, headed by BJP Leader Yashwant Sinha, had recommended retaining FDI cap at 26 per cent, the government went for the higher cap so as “to meet the growing capital requirement of insurance companies”.

Max Life Insurance MD Rajesh Sud said, “this would have been an opportunity to allow foreign investors to participate in the life insurance, since they are also a source of long-term capital, particularly in view of potential IPOs of these companies”.

IRDA Chairman J Hari Narayan had yesterday pitched for raising the FDI cap saying that the sector needed huge capital for expansion.

The Cabinet also approved foreign re-insurers to open branches only for re-insurance business in India. Such branches would be prohibited from investing directly or indirectly outside India the funds of policyholder.

The amended bill has also pegged the capital requirement of health insurance companies at Rs 50 crore as against Rs 100 crore for general insurers.

The definition of health insurance business has been revised to clearly stipulate that health insurance policies would cover sickness benefits on account of domestic as well as international travels.

The amendments to the bill would allow UK-based reinsurer Lloyd’s to do business in India. Regarding the obligatory underwriting of third party risk on Motor Vehicles, a separate Motor Vehicle Insurance and

Compensation Legislation is being proposed by the Government and the concerns of the Standing Committee regarding the obligatory third party insurance on motor vehicles will be taken care of, an official statement said.

The period during which a policy can be repudiated on any ground, including misstatement of facts etc, has been confined to three years from the commencement of the policy, it said.

Besides, the Public Sector General Insurance Companies and GIC would be permitted to raise capital from the market to meet future capital requirements, provided that the Government’s shareholding would not be allowed to come below 51 per cent at any point of time.

The provisions of the Bill relating to the FDI would apply to only to private sector insurance companies and not to the state-owned insurers, Chidambaram said.

At present there are 23 private sector life and non-life insurance companies, besides state-owned LIC, GIC and four general insurance companies.

The Insurance sector was opened up for private sector in 2000 after the enactment of the Insurance Regulatory and Development Authority Act, 1999 (IRDA Act, 1999).

This Act permitted foreign shareholding in insurance companies to the extent of 26 per cent with an aim to provide better insurance coverage and to augment the flow of long-term resources for financing infrastructure.



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