Relaxing FDI limit in insurance intermediaries to boost distribution: Fitch

As per Fitch Ratings, the Budget 2019-2020 suggestion of relaxing foreign investment limit in insurance intermediaries will lead to support distribution capabilities and enhance the international involvement, particularly from developed markets.

The Budget 2019-2020 presented in Parliament on July 5 by finance minister Ms Nirmala Sitharaman, permitted foreign companies to have ownership of up to 100 per cent in insurance intermediaries that will include insurance agents, brokers, loss assessors and surveyors. Earlier the permitted limit was 49 per cent. This comes as to attract more foreign direct investment into the industry.

This removal of the foreign-ownership cap on insurance intermediaries is likely to intensify competition, strengthen distribution capabilities to improve insurance penetration and boost merger and acquisition (M&A) in the medium to long term.

Though the proposed shift is only applicable to insurance intermediaries, the cap on foreign ownership in insurance companies will remain at 49 per cent. However, the government has hinted that it may take further measures to open the insurance market to foreign investors. Relaxing of foreign ownership restrictions on insurance companies can be one of the ideas, Fitch said.

The belief is that, the increased international involvement, particularly from developed markets, may add on completely to the development of distribution networks, use of technology in distribution along with it bring in expertise in areas such as marketing and client-servicing.

According to the Insurance Regulatory and Development Authority of India (IRDAI), there were 368 direct broker firms, 60 composite brokers and five reinsurance brokers as of June 2018.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.