On Monday The Lok Sabha passed the Insurance (Amendment) Bill, 2021 which seeks to increase the maximum permissible Foreign Direct Investment (FDI) in the insurance sector to 74%, from the current limit of 49%.
The Bill to amend the Insurance Act, 1938 was passed by the Rajya Sabha las week. As per the Statement of Object annexed to the Bill, “In order to achieve the objective of Government’s Foreign Direct Investment Policy of supplementing domestic long-term capital, technology and skills for the growth of the economy and the insurance sector, and thereby enhance insurance penetration and social protection, it has been decided to raise the limit of foreign investment in Indian insurance companies from the existing 49 per cent to 74 per cent.”
It may be noted that the foreign investment in insurance sector was first permitted in the year 2000 up to 26%. Subsequently, vide an Amendment Act of 2015, this limit was raised to 49% of the paid-up equity capital of such company, which is Indian owned and controlled.
The instant Bill removes such restrictions on ownership and control. However, such foreign investment may be subject to additional conditions as may prescribed by the Central Government.
The Bill also proposes to omit explanation appended to Section 27(7) of the principal Act. Presently, the Act requires insurers to hold a minimum investment in assets which would be sufficient to clear their insurance claim liabilities. If the insurer is incorporated or domiciled outside India, such assets must be held in India in a trust and vested with trustees who must be residents of India.
The explanation states that this will also apply to an insurer incorporated in India, in which at least: (i) 33% capital is owned by investors domiciled outside India.
