Insurance a long game with hurdles, foreign investors unlikely to rush in

Mumbai: The government has formally paved the way for 100% foreign ownership in insurance companies, but industry experts say the latest liberalisation is unlikely to trigger a rush of new foreign entrants setting up wholly-owned insurers in the country.

The government has notified the Indian Insurance Companies (Foreign Investment) Amendment Rules, 2025, aligning foreign investment limits with the amended Insurance Act, which allows full foreign ownership in insurers. References to the earlier 74% cap have been removed, and foreign direct investment has been expanded to include investments by foreign venture capital investors under the non-debt instruments rules in the Foreign Exchange Management Act.

Market participants, however, say structural realities will limit the immediate impact of these reforms.

Setting up a greenfield insurer in India requires significant capital, patience and a long-term commitment to a highly competitive market dominated by large domestic private groups. The life insurance sector remains highly concentrated, with the top five life players commanding an 82% share. In the case of general insurance, pricing controls in segments like third-party motor and thin margins in mass-market products also temper investor enthusiasm.

"Strategic foreign partners may increase stakes in existing joint ventures or look at selective acquisitions, but very few global insurers are expected to open 100% foreign-owned insurance companies from scratch," said one industry executive, adding that India's insurance story remains attractive but difficult to run without a local distribution partner.

The changes also give more leeway. The mandate that many directors and key management personnel be resident Indian citizens has been scrapped, though at least one among the managing director, chief executive officer or chairman must continue to be a resident Indian. Several governance and capital restrictions applicable to insurers with foreign shareholding above 49%, including tighter dividend retention norms and higher independent director thresholds, have also been withdrawn.

"Removal of the requirement of retention of 50% of net profits in general reserves before dividend repatriation unless solvency of 180% is maintained, is a major step consistent with increasing the FDI in the insurance sector to 100% in the Insurance Act, 1938 recently," said CL Baradhwaj, a company secretary.

In addition, conditions placed at the time foreign direct investment was increased from 49% to 74%, that the majority of directors and key management personnel be resident Indian citizens, have also been removed.

Under the new rules, only one of the managing director, chief executive, or the chairman of the board needs to be a resident Indian.

For insurance intermediaries with majority foreign ownership, prior regulatory approvals for dividend repatriation, restrictions on payments to foreign group entities and prescribed board and management composition requirements have been removed, leaving oversight to sectoral regulators.