Reflections on Budget 2022 – Insurance

By Nisha Karavadra-Diwan

India first allowed private companies in the insurance sector in 2000, at the time setting a limit on FDI to 26 per cent. The limit was later increased to 49 per cent in 2014/2015 after a gap of nearly 15 years to attract greater foreign investment through more routes whether through the FDI, FPI, NRI, FVCI or DR to improve insurance penetration and density in India. Some of the UK’s most prominent insurance and reinsurance companies like BUPA, Aviva, Prudential, Lloyds and Aon are already present in India.

In 2021, the sectoral cap was further increased from 49 per cent to 74 per cent, a huge milestone for both the Indian Government and foreign businesses – something that we at the UKIBC have been advocating for through our engagement with both Governments. However, the increase in FDI in itself was not seen as attractive as it might be thought owing to requirement of the ‘Indian owned and controlled’ clause which meant a company is considered as “controlled” by resident Indian citizens if the power to appoint a majority of the directors on its board is held by Indian companies and citizens and ‘owned’ by resident Indians if more than 50 per cent of the equity is held by the entities in India. This was considered to be significant hurdle for foreign businesses to invest in the sector overall impacting the liberalisation of the Insurance sector.

However now that the ‘Indian owned and controlled’ clause has been dropped the industry sees this as a crucial step in the right direction. This will not only positively impact existing UK companies operating in India but may also pave the way for new businesses interested in entering the market.

The degree of openness to foreign investment remains a critical point to attract greater FDI into the country. It signifies the move towards liberalisation of policy regime.

While the increase in FDI ceiling eases the top most barrier for doing business in India according to UKIBC’s 7th Annual Doing Business Report in India launched in December 2021, namely legal and regulatory barriers, businesses look forward to related regulatory reforms to make the market even more attractive. During the recent Union Budget, set out on 1 February 2022, the Finance Minister said the government would launch Ease of Business 2.0 and Ease of Living. The shift towards taking these initiatives into the next phase outlines a clear thought process of how the government acknowledges this being the constant key barrier to FDI and takes you towards the desired Trust Based Governance.

According to a recent report, the life insurance industry in India is expected to increase by 14-15% annually for the next three to five years. Life Insurance Corporation of India (commonly referred to as LIC) is the only public sector life insurer in India. In 2020-21, the growth in premium underwritten by LIC was 6.3 per cent (y-o-y), capturing 64.1 per cent of the market share within the life insurance market. LIC reported profits of a striking Rs. 2900 crore (approx. GBP 290 million) compared to the combined private sector participants of Rs. 5760 crore (GBP 570 million) in 2020-21. In the Budget, we saw that the state disinvestment is scheduled to go ahead by 31 March 2022 – providing a further potential opportunity for FDI, and companies to take a chance and further explore the possibilities within the life insurance industry.

In addition to the traditional insurance business, the pandemic has prompted a significant increase in the use of technology across sectors including the insurance sector. Insurers now have the opportunity to play a key role by co-creating and adapting their offerings to the new digital environment. They need to partner with digital platforms and Insurtechs to enable more personalised management and significantly increase the penetration of insurance in India – an area of substantial opportunity for UK-India collaboration.

Although the FDI increase is a momentous step in the right direction the overall growth and success of the sector will ultimately depend on further improving regulatory issues like reducing corporate taxes providing for equal tax treatment across all companies within the same industry; removing procedures like Order of Preference to provide a level playing field for foreign and domestic players, easing repatriation of capital and ensuring India’s data protection regulation balances privacy and innovation supporting the use of technology in the sector.

In 2022, we will continue to engage with both the Governments of UK and India to ensure we can support them in this journey. We hope the Free Trade Agreement currently being negotiated will pave the way for the insurance sector to become a significant contributor to the India-UK relations.


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