India: 100% FDI Soon For Insurance Broking

Last Updated: 15 November 2018
Article by S.S. Rana & Co. Advocates

In this world, with full of uncertainties, individuals are often confronted with the threat of changing scenarios. To safeguard their interests against the sudden change of events, people opt for cover of Insurance which is the contracts of indemnity assurance whereby one party undertakes to pay a certain sum of money on the occurrence of any contingency. They provide an umbrella of protection mitigating the loss/ damage caused due to the occurrence of an uncertain event. In India, insurance policies provided are life, fire, marine, vehicle (including third party insurance), commercial crime, etc.

Regulatory mechanism

In India, the Insurance Regulatory and Development Authority (hereinafter referred to as "IRDA") regulates, promotes and ensures orderly growth of the insurance industry, protection of the policy holders and settlement of insurance claims under the provisions of the Insurance Regulatory and Development Authority of India Act, 1999 (hereinafter referred to as "IRDA Act").

In order to form a consolidated framework to regulate the affairs pertaining to the insurance business in India, the Government enforced the Insurance Laws (Amendment) Act, 2015 (hereinafter referred to as the "Insurance Act")

Foreign Investment in Insurance industry

The economy of India has been boosted to a considerable level owing the foreign investment inflow. The Government has been focussed its efforts towards reinforcement of commercial structure of the country by introduction of numerous schemes for business development including incentivization, easier procedural requirements, limited compliance hurdles, etc., thereby encouraging foreign investment.

Foreign Direct Investment (hereinafter referred to as "FDI") serves as a source to the resources requirements of the host country playing a significant role in enhancing its production level. The multiple benefits offered by FDI are access to capital, internationally available technologies, management know-how, marketing skills, etc.

With a view to stimulate foreign investment in insurance sector in the form of raising capital for business of the company, insurance brokers, third party administrators, surveyors and loss assessors and other insurance intermediaries, the Government raised the FDI limit to 49 % 1 and the same has also been covered under Section 7A(b) of the Insurance Act. This measure was aimed at expansion of the capital sensitive insurance industry increasing the stake of the foreign investors and opening the door for more business operations in this arena.

Insurance broking

Insurance broking is like any other financial or commodity broking services. An essential component involved in the business of insurance is its marketing and distribution. For the said purposes, the business entities engage intermediaries such as individual agents, corporate agents, and point of sales persons. An insurance broker sells, solicits, or negotiates insurance for compensation. They are the specialists with meticulous skill for planning, working in risk management and claim handling, advising their clients for best options that can be availed.

Increasing the FDI limit – a thought?

The Government is in the process of considering allowance of 100 % FDI in insurance broking fostering ease of doing business in the country. 2

Representations have been made to the Government time and again on the issue that insurance brokers should be treated at par with other financial services intermediaries.

Envisioning the advantages to be conferred on the growth of the insurance market in India, the Government may soon allow 100% FDI in insurance broking thereby liberalizing the investments in the said domain making available more choices for the consumers in terms of advisors, quality of services and competitive costs.

Footnotes

1. RBI Press Note No. 3/2015 http://dipp.nic.in/sites/default/files/pn3_2015%20%204_0.pdf

2. https://www.business-standard.com/article/economy-policy/govt-mulls-100-fdi-in-insurance-broking-insurers-cap-to-stay-at-49-118100200478_1.html

For further information please contact at S.S Rana & Co. email: info@ssrana.in or call at (+91- 11 4012 3000). Our website can be accessed at www.ssrana.in

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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