July 14, 2015
The government is considering allowing 100% ownership by foreign entities in insurance intermediaries, including brokers, despite opposition from the Insurance Brokers Association of India (IBAI). .
Although caps on foreign investment in insurance intermediaries were not originally envisaged, the insurance regulator has applied the limit applicable to insurance companies to companies across the sector, reported The Times of India. This ceiling for foreign investment in insurers has been increased from 26% to 49% following an amendment to the insurance law in March. The rethink regarding intermediaries by the Insurance Regulatory and Development Authority of India (IRDAI) comes at a time when the government has allowed reinsurance firms to set up 100%-owned units in the form of domestic branches. Several international brokers are keen to follow their clients in India but are not interested in holding minority stakes..
One reason for considering 100% FDI for broking firms is that insurance broking is not a capital-intensive business and most of the work is advisory in nature. Even if the premium is sourced by a multinational broking firm, the policy is issued by a domestic insurance company. Another reason is that a foreign bank can invest up to 100% in an Indian private sector bank. Banks are allowed to distribute insurance products as corporate agents. IBAI has argued that a 100% stake by foreign entities in insurance intermediaries will shift control into the hands of foreign entities. However, foreign players argue that a higher foreign investment limit is required for them to be willing to bring in expertise and connectivity.