Relaxation of foreign investment limits in the insurance sector has been a subject of much debate over a period of time. Various stakeholders, including industry participants have advocated in favour of increase of foreign investment in the insurance sector. As a first step towards achieving this end, on 26th December 2014, the Insurance Laws (Amendment) Ordinance 2014 (Ordinance) was introduced to increase the permitted limit of foreign direct investment (FDI) in the Indian insurance companies from 26% to 49%[[1]]. Subsequent to the Ordinance, the Indian Insurance Companies (Foreign Investment) Rules 2015 (Foreign Investment Rules) were notified. As regards insurance intermediaries, Rule 9 of the Foreign Investment Rules stipulated that in parity with insurance companies, the foreign investment in insurance intermediaries shall be capped at 49%.

It was however felt that parity in the FDI limits was unfair, as unlike insurance companies, insurance intermediaries are not custodians of policyholders' monies. As a result, over a period of time, various representations were made before the Insurance Regulatory Development Authority of India (IRDAI) by the industry stakeholders for relaxation of the FDI limit applicable to insurance intermediaries.

On 5th July 2019, the present Indian finance minister, Ms Nirmala Sitharaman, in her budget speech, proposed for the FDI limit in insurance intermediaries to be increased from 49% to 100%. Subsequently, on 2nd September 2019, the union government notified the Indian Insurance Companies (Foreign Investment) Amendment Rules 2019 (Amendment Rules), which effectively increased the limit on FDI in insurance intermediaries to 100%.

Amendment Rules

Pursuant to the amendment, inter alia, Rule 9 of Foreign Investment Rules, has been amended. Rule 9 now states that there shall be no cap on foreign equity investment for intermediaries or insurance intermediaries. However, where an entity whose primary business is outside insurance, is allowed by the IRDAI to function as an insurance intermediary, the foreign equity investment caps applicable in that sector shall continue to apply to such intermediary, subject to the condition that the revenues of such entities from the primary (non-insurance related) business remain above 50% of their total revenues in any financial year.

Rule 9 of the Foreign Investment Rules further stipulates that the proposals for FDI in relation to insurance intermediaries will be allowed under automatic route, subject to verification by the IRDAI. The Amendment Rules further stipulate that an insurance intermediary that has majority shareholding of foreign investors shall:

a) Be incorporated as a limited company under the provisions of the Companies Act 2013;

b) Undertake that at least one person from amongst the Chairman of the Board of Directors or the Chief Executive Officer or Principal Officer or Managing Director of the insurance intermediary shall be a resident Indian citizen;

c) Take prior permission of IRDAI for repatriating dividend;

d) Bring in the latest technological, managerial and other skills;

e) Not make payments to the foreign group or promoter or subsidiary or interconnected or associate entities beyond what is necessary or permitted by IRDAI;

f) Make disclosures in the formats to be specified by IRDAI of all payments made to its group or promoter or subsidiary or interconnected or associate entities;

g) Ensure that composition of the Board of Directors and key management persons shall be as specified by the concerned regulators.

Applicability of IOC Guidelines - Need for Clarity

In addition to the provisions of the Foreign Investment Rules, insurance companies as well as insurance intermediaries are required to adhere to the Indian owned and controlled norms as notified by the IRDAI. In this regard, insurance intermediaries are required to comply with the IRDAI's "Guidelines on Indian Owned and Controlled" of 19th October 2015 (IOC Guidelines). The IOC Guidelines stipulate that every insurance intermediary must be "Indian owned and controlled" at all times. To ensure "Indian control" the following requirements must be complied with by an entity:

a) The majority of the Board of Directors, excluding independent directors, must be nominated by the Indian promoters/Indian investors;

b) Key management persons including the CEO and the Principal Officer should be appointed by the Board of Directors or by the Indian promoters/Indian investors;

c) Control over "significant policies" should be exercised by an appropriately constituted Board of Directors;

d) In cases where the Chairman of the Board of Directors has a casting vote, the Chairman must be nominated by the Indian promoters/Indian investors;

e) Valid quorum for a board meeting is considered to be constituted with the presence of majority of the Indian directors.

It is pertinent to note that since the notification of the Amendment Rules, the IRDAI has not issued any notification or circular to provide clarity regarding the continued applicability (if at all) of the IOC Guidelines to insurance intermediaries, in light of the relaxation to the FDI limit. However, with the notification of the Foreign Investment Rules, the provisions of the IOC Guidelines may be considered to be effectively overridden.


While majority of the insurance intermediaries have welcomed the introduction of 100% FDI there are certain domestic players who have expressed reservations regarding this step. These players fear that 100% FDI in insurance will adversely impact the business of small domestic insurance intermediaries which are completely owned and controlled by Indian entrepreneurs. It remains to be seen what steps (if any) will be taken by the IRDAI to ensure that a step towards encouraging foreign investment does not lead to the interests of domestic players being disproportionately compromised. In addition, there is also a need to amend the IOC Guidelines to bring the same in conformity with the Foreign Investment Rules.

[1] The Ordinance was subsequently replaced by the Insurance Law (Amendment) Bill 2015.

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