Legal Reforms For Investments In The Insurance Sector — A New Horizon In Sight

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Over the past few years, the insurance sector has seen some key legal reforms in relation to investments, with a critical one being allowing foreign investment of up to 74% in Indian insurance companies. The drive for reforms has been accelerated recently and to this effect, the government of India has proposed some key amendments to the Insurance Act, 1938 and The Insurance Regulatory Development Act, 1999 and invited comments. 

The key takeaway from the proposed amendments, in terms of inviting investments into Indian insurance companies, is that to allow insurers to offer both general and health insurance under a single license, as opposed to existing laws under which life and general/health insurance are to be conducted through separate companies, thereby increasing the scope of services that insurance companies can offer and the requirement for capital to do so.

This proposal understandably does not extend to reinsurance business, which would require a separate registration.

Further, widening of the scope of the business of an insurance company is proposed by allowing insurance companies to provide services incidental to the insurance business and distribute other financial products, subject to regulations to be formulated in this regard. 

Another key amendment proposed is that any sale of shares of an Indian insurance company by a seller (or a group of sellers under the same management) of 5% or more of the equity capital of an insurance company would require an approval from the Insurance Regulatory and Development Authority of India, as opposed to 1% or more as it presently stands.

This brings it in line with another existing provision, which states that any buyer of 5% or more of an equity stake in an Indian Insurance company requires a prior IRDAI approval before such transaction.

This amendment would vastly quicken the time taken for investors to disinvest smaller stakes in insurance companies, making them more attractive to potential investors. 

Speaking of easing regulations for investors, under a Press Note dated Nov. 5, 2022 issued by the IRDAI, investments in insurance companies are being made more attractive to investors under a rather bold proclamation of a vision of “Insurance for All by 2047”.