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FM promises safeguards; Rajya Sabha passes Bill to hike FDI in insurance


A Bill raising the foreign investment limit in insurance to 74 per cent ensures that control, ownership and money collected from policyholders stays in the country, Finance Minister Nirmala Sitharaman told Parliament on Thursday.

Every insurance product, pricing, investment and marketing is regulated in the country, she said in reply to a debate in the Rajya Sabha, which passed the Bill.

The decision to increase the foreign direct investment (FDI) limit from 49 per cent was taken after the sector regulator IRDAI held detailed consultations with stakeholders. “The regulator also flagged this point that if FDI has to be raised, it has to be raised with adequate safeguards…very clearly looking at both aspects of control and ownership, and also the (policyholders’) money does not go out of the country,” Sitharaman said.

The Bill provides that no insurer shall, directly or indirectly, invest policyholders’ funds outside India. Indian companies having foreign investment will also be required to retain a specific percentage of the profits as a general reserve. Rules will be made that would prescribe conditions to ensure meeting of policyholder claims, regardless of a foreign investors’ own financial condition.

“That is something which I want to underline that money which is going to be the general reserve, even if the insurer promoter gets into difficulty, that money is there for you to pay every insured members’ claim,” Sitharaman said.

Besides this, a majority of the directors, key management persons of the Indian insurance companies will be resident Indians, bringing them within the reach of all Indian laws and codes, she said. In addition, 50 per cent of the directors will be independent directors to keep a watch on respective company’s decisions.

Explaining the rationale to increase the FDI limit, Sitharaman said insurance companies are facing liquidity pressure as they need to constantly maintain solvency ratio. “So when companies face liquidity pressures, they need more money to come in, and within India for them to raise every attempt has been made, but maybe adequately (they are) not getting liquidity for their operations both to meet the solvency requirements, and also for the business development,” Sitharaman said.

India’s premium to GDP ratio, indicating insurance penetration in the country, has increased to 3.76 per cent in 2019-20 from 2.71 per cent in 2001, she said, which is still way below the global average of 7.23 per cent.

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