FDI limit hike to accelerate insurance growth in India, says GlobalData

The proposed increase in foreign direct investment (FDI) limit in the insurance sector in India from 49% to 74% is expected to accelerate growth, according to GlobalData, a leading data and analytics company.

As per the latest data from GlobalData, Indian insurance industry is expected to register a compound annual growth rate (CAGR) of 6.3% during 2019-24, compared to 12.3% during 2015-19, primarily due to the COVID-19 pandemic led economic slowdown.

Anjuli, Insurance Analyst at GlobalData, comments: “Increase in FDI will bring additional capital and help insurers maintain adequate solvency margins. We can also see increase in merger and acquisition activity as foreign partners are expected to take higher control of local joint ventures. As a result, we will see higher investments in technology and product innovations which will benefit Indian customers.”

An analysis of GlobalData’s Global Insurance Database reveals that insurance penetration in India was 3.6% in 2019, much lower compared to countries like South Korea, Australia, Thailand and China where penetration rates were 11.1%, 5.0%, 5.1% and 4.3%, respectively.

Anjuli continues: “Against this backdrop, increase in FDI limit will significantly boost local underwriting capacity, enabling insurers to cover more risks, thereby increasing insurance penetration.”

Increased foreign investment and entry of new players will also intensify competition. Local insurers such as Life Insurance Corporation of India with a market share of 66.4% in life segment and The New India Assurance Co., Ltd. with a market share of 12.8% in the non-life segment are expected to face stiff challenge and lose their share as private players are expected to be more aggressive in their approach.

Anjuli concludes: “Increase in FDI limits in the underpenetrated Indian insurance industry is a welcome and essential step. It will provide customers with better products at lower costs, which will help increase insurance penetration.”

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