Paving way for clarity for FDI in the Insurance Sector

The DIPP through its release of Press Note 2 of 2014 (“PN-2”) has made certain changes in the erstwhile Consolidated FDI Policy of 2013 (“Policy”) in Paragraph The erstwhile Policy provided that FDI could be made though automatic route with a cap of 26%, after taking necessary approvals/licences from the Insurance Regulatory Development Authority (“IRDA”).

However the erstwhile Policy had no mention of NRIs and FIIs investing in Insurance business but the PN-2 makes a clear mention of NRIs and FIIs who now can invest through the automatic route having the same capping of 26%.

The PN-2 defines Indian Insurance Company as a legal entity incorporated under Indian Companies Act, 1956, an entity not having foreign shareholding of more than 26% and an entity solely engaged in insurance and re-insurance activities.

The PN-2 further makes some additions to the conditions of investments and also paves the way towards greater clarity in business in the insurance activities. The amended position specifies the insurance activities under which investments could be made, namely Insurance companies, Insurance brokers, Third party administrators and Surveyors and Loss Assessors. For the aforementioned purpose Insurance Brokers, Third Party administrators and Surveyors and Loss Assessors shall be governed by the IRDA (Insurance Brokers) Regulations, 2002, IRDA (TPA-Health Services) Regulations, 2001 and IRDA Insurance Surveyors and Loss Assessors (Licensing, Professional Requirements and Code of Conduct) Regulations, 2000 respectively.

Fresh Applications for investments in Insurance companies which are promoted by Private Banks shall be directed to the RBI for consultations with the IRDA for necessary compliances and for keeping the foreign investments well within the defined cap of 26%.

Present reformulation in regards of Insurance sector would bring healthy competition in Indian market and the consumers/customers would have better opportunity and options to select as per their varied demands. And again, the scope in the investment fronts would give a boost to the sustaining economic growth of the country as well in turn.