The federal government in its Union Funds for 2025-26 proposed elevating the overseas direct funding (FDI) restrict for India’s insurance coverage sector to 100% from 74%—assembly a long-awaited business demand. So why did the shares of most Indian insurance coverage corporations finish the day flat to unfavorable? The easy purpose for that being that well-established life insurance coverage corporations in India don’t want the experience of overseas gamers by way of strategic stake sale any longer.
Additionally, the curiosity of overseas corporations in Indian insurance coverage has declined over time. Normal Life (now referred to as ABRDN Plc.), New York Life Insurance coverage Co., Previous Mutual Ltd after partnering with HDFC Life Insurance coverage Co. Ltd, Max Life and Kotak Life, respectively, have exited India.
There’s additionally a necessity to differentiate between the federal government authorised restrict and firm particular restrict authorised by the board of administrators of an organization.
For example, even with the overseas possession restrict at 74%, HDFC Life had capped it at 49%. The shortage of curiosity of overseas buyers in Indian life insurance coverage corporations is obvious from the truth that not solely is the prevailing restrict of 49% underutilized, their shareholding has been step by step falling—from 31.4% in December 2023 to 25.3% in December 2024.
The identical is true for ICICI Prudential Life Insurance coverage Co. Ltd, which has an authorised restrict of 74%, however precise utilization stands at simply 36.8%. ICICI Lombard Normal Insurance coverage Co. Ltd additionally has lower than 25% overseas shareholding regardless of the restrict of 74%.
This brings us to the moot query: why would established gamers like, say, SBI Life Insurance coverage Co. Ltd be joyful to let their shareholding drop beneath 26%? Successfully, because of this even when 100% FDI is permitted within the insurance coverage sector, if corporations don’t need to let go of their stake, there’s little that overseas buyers can do.
Who good points then?
For small or fringe insurers that need to exit utterly, the Funds proposal presents a chance as overseas insurance coverage giants wouldn’t have to fret in regards to the nuisance of getting to take care of minority shareholders interfering in administration holding a 26% stake.
A working example is Kotak Mahindra Normal Insurance coverage Co. Ltd, which had lower than 1% market share in annual premium within the normal insurance coverage sector and bought 70% of its stake to Zurich Insurance coverage Co. Ltd for ₹5,560 crore in June. It is likely to be well-placed to exit utterly if it needs after the most recent Funds announcement.
New entrants don’t have any overseas promoters
Earlier than Acko Life Insurance coverage, CreditAccess Life Insurance coverage and Kshema Normal Insurance coverage started operations in 2022-23, life and non-life insurers in India have been registered in 2011 and 2017, respectively. None of those corporations is promoted by foreigners. The promoters of those corporations might have anyway raised funds by promoting a 74% stake.
Even when overseas corporations need to arrange store in India, they might need to have a minority accomplice because it helps in having a distribution community. So, in any case, it’s possible that they might have lower than a 100% stake.
Sector implications
Whereas it’s assumed that the rise in FDI restrict in insurance coverage will improve competitors, the Indian insurance coverage market already has too many gamers, with 24 life insurance coverage corporations and 34 normal insurance coverage corporations, as per the info on Insurance coverage Regulatory and Growth Authority of India’s web site.
Additionally, many of the incremental progress for all times insurance coverage corporations is from unit-linked insurance coverage plan (Ulip) gross sales, indicating that insurance coverage has turn into extra of an funding. The federal government’s ambition to make sure ‘insurance coverage for all by 2047’ might be met by way of intensive protection of Ayushman Bharat (the federal government’s medical health insurance scheme) and that enterprise is more likely to be bagged by public sector normal insurance coverage corporations.
What to be careful for
Essentially the most important change for Indian non-life insurance coverage corporations or normal insurance coverage corporations might occur if the products and companies tax (GST) is abolished as that may enhance affordability. However that falls below the area of the GST council. As and when it occurs, it ought to see elevated curiosity on the whole insurance coverage from foreigners and home gamers alike.
