The Treasury Department is considering changes to insurance laws, including a reduction in minimum capital requirements, to increase 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 insurance premiums as a percentage of GDP, saw notable growth during the year, mainly due to the COVID-19 outbreak.
The ministry is conducting a comprehensive review of the 1938 Insurance Act and is also considering making relevant changes to spur growth in the sector, sources said, adding the process is at a preliminary stage.
One of the provisions under consideration is lowering the minimum capital requirement of Rs 100 crore for starting an insurance business, the sources said.
Relaxing capital requirements would allow for the entry of differentiated insurance companies like in the banking sector, which includes categories like universal banks, small financial banks and payments banks.
With the easy access capital norms, sources say, there could be market entry of companies focused on microinsurance, farm insurance or insurance companies with a regional approach.
So for them, the solvency margin would be different too, but without hurting policyholders’ interests, the sources said.
The entry of more players would not only drive market penetration but also lead to greater job creation in the country.
There are currently 24 life insurance companies and 31 non-life or general insurance companies, including specialist companies such as Agriculture Insurance Company of India Ltd and ECGC Limited.
Last year, the government introduced an amendment to the insurance law to allow foreign ownership of insurers to be increased from 49 percent to 74 percent. Also, Parliament passed the General Insurance Business Amendment (Nationalization) Act 2021, which allows the central government to reduce its stake in any given insurer to less than 51 percent of equity, paving the way for privatization.
In 2015, the Insurance Law was amended to raise the foreign investment ceiling 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 expected to become the sixth largest insurance market in the world in the next 10 years, supported by regulatory pushes and rapid economic expansion.
Total insurance premiums in India are set to increase at an average annual rate of 14 percent in nominal local currencies over the next decade, making India the sixth largest country in terms of total premium volume by 2032, compared to the tenth largest in 2021.
Both life and non-life insurers have taken a premium of Rs 8.2 lakh crore in 2020-21.
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