New Delhi: The proposed raising of FDI limit in Indian insurance companies to 100 per cent would bring more players into the market and generate employment opportunities, Finance Minister Nirmala Sitharaman informed Parliament on Tuesday.
Further, she said, “improved technologies and automation would lead to faster underwriting, claim processing leading to improved turnaround time thereby reducing cost and enhancing overall efficiency of the sector.”
The increase in FDI in Indian insurance companies from 74 per cent to 100 per cent was announced in the Union Budget on February 1, 2025.
The Insurance Act, 1938 governs investment by insurers with a strong emphasis on safety, liquidity, and regulatory oversight by aligning investment by insurers with policyholder interests.
The Act stipulates time, manner, form, conditions and instruments allowed for investment. Insurers are mandated to invest a specified percentage of funds in government securities and other approved securities as specified by Insurance Regulatory and Development Authority of India (IRDAI).
“Additionally, the Act does not permit Indian insurance companies to invest any of their funds outside India. Hence, all the funds of insurance companies must be compulsorily invested in India,” she said in a reply in the Rajya Sabha.
In order to ensure financial stability in the insurance sector and protection of policyholders, she said, the Act further mandates every insurer to maintain at all times, an excess of assets over liabilities of not less than 50 per cent of the minimum capital amount.
Irdai further mandates insurers to maintain the control level of solvency of 150 per cent at all times, she said.
Further, in case of an insurer acting in a manner prejudicial to the policyholders’ interests, Irdai is empowered by the Act to supersede the Board of such insurance company and appoint an Administrator to manage the affairs of the insurance company.
Besides, she said, the regulatory oversight of the Irdai ensures transparency and policyholder protection by promoting fair business practices, solvency monitoring, supervision and efficient grievance redressal.
As per the Companies Act, 2013, all insurance companies are board- governed entities and are required to be compliant with the Companies Act, 2013 at all times for all governance matters.
This, alongside Indian Insurance Companies (Foreign investment) Rules, 2015 governs various aspects of operations including dividend payment, repatriation of profit and composition of Board of Directors for insurance companies.
“All these provisions and mechanisms ensure adequate checks and balances for conduct of business of insurance in India and act as safeguards,” she said.