The finance ministry is considering changes to insurance laws, including lowering the minimum capital requirement, with a view to increasing insurance penetration in the country. Insurance penetration in India increased from 3.76 percent in 2019-20 to 4.20 percent in 2020-21, registering a growth of 11.70 percent. Insurance penetration measured as a percentage of insurance premium to GDP witnessed a nice growth during the year, mainly due to the outbreak of COVID-19.
The ministry is undertaking a comprehensive review of the Insurance Act, 1938 and is also looking at making relevant amendments to help boost the growth of the sector, sources said, adding that the process is at a preliminary stage. One of the provisions being considered is lowering the minimum capital requirement of Rs 100 crore for setting up an insurance business, sources said. Easing the capital requirement would allow the entry of differentiated insurance companies as in the banking sector, which has categories such as universal bank, small finance bank and payment bank.
With the easing of capital inflow rates, sources said, there could be entry of companies focused on microinsurance, agricultural insurance or insurance firms with a regional approach. So, for them, the solvency margin requirement would also be different, but without compromising policyholders’ interests, sources said. The entry of more players would not only boost penetration but also result in more jobs being created in the country.
Currently, there are 24 life insurance companies and 31 non-life or general insurance firms, including specialist players such as Agriculture Insurance Company of India Ltd and ECGC Limited.
Last year, the government brought about a change in insurance law to allow foreign ownership in insurers to increase from 49 percent to 74 percent. In addition, Parliament passed the General Insurance Business (Nationalization) Amendment Bill, 2021, allowing the central government to reduce its stake to less than 51 percent of its equity in a particular insurer, paving the way for privatisation. .
In 2015, the insurance law was amended to increase the foreign investment limit from 26 percent to 49 percent. All these changes since the privatization of the insurance sector have led to exponential growth.
According to a study, India is likely to become the world’s sixth largest insurance market in the next 10 years, supported by regulatory push and rapid economic expansion.
Total insurance premiums in India will grow by an average of 14 percent per year in nominal local currency terms over the next decade, making India the sixth largest in terms of total premium volume by 2032 from e 10th largest in 2021. Both life and non-life insurers collected a premium of Rs 8.2 lakh crore during 2020-21.
