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