NEW DELHI – In a press release yesterday the Department of Industrial Policy and Promotion (DIPP) clarified that the existing 26 percent cap on foreign investments in the insurance sector also applies to intermediaries such as brokers, third party administrators and surveyors. The official press release from the DIPP can be found here.
Previously, "other conditions" on FDI in the insurance sector reverted to the Insurance Act, 1938 and restricted investment to FDI under the automatic route providing companies obtain the necessary license form the Insurance Regulatory & Development Authority (IRDA).
Under the clarified conditions, the 26 percent cap will now apply to not only FDI, but also foreign institutional investments (FII) and investments from non-resident Indians (NRIs) under the automatic route. Furthermore, investors are now able to not only invest in an "insurance company," but also "insurance brokers, third party administrators and surveyors and loss assessors."
Each of these four sectors are defined in the press release, with most definitions drawn from official IRDA rules and norms.
The decision will come into force with immediate effect, and investors are still required to obtain the necessary licenses prior to investing under the automatic route.
The 26 percent FDI cap on the insurance sector has existed since the April 2013 Circular amended Indian FDI policy in a number of key business sectors and in several instances eliminated the need for foreign investors to obtain approval from the government before investing.
For the insurance industry, however, the changes fall significantly short of their demand for the government to hike the FDI cap in the sector to 49 percent.
Since the introduction of the Insurance Laws Amendment Bill in 2008 – which would raise the cap to 49 percent – Parliament has stalled all progress on the bill due to lack of political consensus.
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