A Study of FDI in Life Insurance Sector in India

Dr. Vijay Maruti Kumbhar

(M.A., Ph.D., B.Ed., NET, SET, GDC&A, DIT)

Assistant Professor
Dept. of Business Economics,
Dhananjayrao Gadgil College of Commerce, Satara
Dist-Satara Maharashtra, India 415001
Mobile No.09860176059
Email ID vijay.kumbhar9@gmail.com
Blog: http://vijaykumbharrayat.blogspot.in
Introduction
The insurance sector is of considerable importance to every developing economy; it
inculcates the savings habit, which in turn generates long-term investible funds for infrastructure
building There is hardly a facet of the Indian psyche that the concept of foreign has not permeated.
This term, connoting modernization, international brands and acquisitions by MNCs in popular
imagination, has acquired renewed significance after the reforms initiated by the Indian Government
in 1991 (Mishra & Bhatnagar, 2009). As per guidelines issues by the Government of India the
insurance sector also opened for foreign investors. And Indian insurance companies can issue equity
shares, fully, compulsorily and mandatorily convertible debentures and fully, compulsorily and
mandatorily convertible preference shares subject to pricing guidelines/valuation norms prescribed
under FEMA Regulations for foreign direct investment in Indian insurance companies (FDI Circular,
2012). According to this policy Applications for foreign direct investment in insurance sector
addressed to the Insurance Regulatory and Development Authority (IRDA) in order to ensure that
the 26 per cent limit of foreign shareholding applicable for the insurance sector.
Guidelines for FDI in Insurance Sector
The Insurance sector was opened up for private sector in 2000 after the enactment of the
Insurance Regulatory and Development Authority Act, 1999 (IRDA Act, 1999). This Act permitted
foreign shareholding in insurance companies to the extent of 26 per cent with an aim to provide
better insurance coverage and to augment the flow of long-term resources for financing
infrastructure (Yashwant Sinha, 2013). FDI in the Insurance sector, as prescribed in the Insurance Act,
1938, is allowed under the automatic route. This will be subject to the condition that Companies bringing
in FDI shall obtain necessary license from the Insurance Regulatory & Development Authority for
undertaking insurance activities. All such investments can be made under the automatic route in terms of
Schedule 6 to Notification No. FEMA 20. Now 26 percent FDI is allowed under the automatic route
without prior approval either of the Government or IRDA in all activities/sectors as specified in the
consolidated FDI Policy. However, there was demand of 49 % of FDI in insurance sector. But
Insurance is a long-term contract and there are some deferent risks in this business and well as
investment in this sector. According to Amanulla Khan (2012), president, AIIEA, An insurance
company deploys funds in long-term investments in order to be able to pay claims that may arise in

the future. Insurance funds are thus suitable for developing national infrastructure and capital
formation. In a developing country like India, the government needs to retain some control over
domestic savings instead of allowing foreign investors to enjoy control over Indian savings. The
Parliamentary Standing Committee came to the same conclusion. It recommended that the cap on
foreign direct investment (FDI) be retained at 26 per cent.
FDI in Life Insurance Sector
Table 1 indicates that there is significant growth in FDI in life insurance sector of the India.
Because of liberalized policy of FDI leads to investment in this sector. Overall FDI was only Rs.
2821.63 crore in 2007-08 now it is increased to Rs. 6532.26 crore in 2011-12. It shows that there is
significant growth in the FDI in insurance sector.
Table-1: Total Equity Share of Life Insurance Companies Purchased by Foreign Investors
2008
2009
2010
2011
2012
2821.63
4354.51
5053.98
5723.81
6532.26
Source: IRDA, 2012

Table 2 indicates that most of Indian life insurance companies have achieved upper limit of
the FDI i.e. 26%. However, BHARTI AXA, Reliance and Sahara insurance companies are not
getting Foreign Capital through FDI they are running their business with domestic sources of capital.
But Reliance has started to get foreign capital since last year and collected Rs. 311.04 crore through
FDI. But SAHARA insurance is not getting foreign capital.

Company

Table 2: Equity Share Purchased by Foreign Investors

2008
2009
2010
2011
2012
Nil

78

148.2

247

295.1

AVIVA

261.17

387.87

491.09

521.27

521.27

BAJAJ ALLIANZ

39.18

39.18

39.18

39.18

39.18

BHARTI AXA

81.36

148.54

251.41

338.97

381.92

BIRLA SUNLIFE

331.37

488.67

512.07

512.07

512.07

CANARA HSBC

Nil

104

130

182

208

AEGON RELIGARE

FDI %
2012

26
26
26
22.22
26
26

DLF PRAMERICA

Nil

35.63

57.54

76.43

79.35

EDELWEISS TOKIO

Nil

Nil

Nil

Nil

39

FUTURE GENERALI

47.18

119.47

179.01

268.26

306.77

HDFC STANDARD

330.46

466.96

511.68

518.67

518.67

ICICI PRUDENTIAL

363.63

370.73

370.78

370.78

370.78

52

117

117

182

208

Nil

52

84.5

123.5

IDBI Federal
INDIAFIRST
ING VYSYA

205.4

264.98

264.98

380.87

380.87

KOTAK MAHINDRA

124.87

132.68

132.68

132.68

132.68

Max New York

268.43

463.43

478.09

478.63

505.56

METLIFE

197.88

410.8

461.44

512.09

512.09

RELIANCE

311.04

SAHARA

SBI Life

260

260

260

260

260

SHRIRAM LIFE

32.5

32.5

32.5

45.5

45.5

STANDARD ICICI

Nil

Nil

Nil

Nil

208

STAR UNION DAI-ICHI

Nil

39

65

65

65

226.2

395.07

499.33

507.91

507.91

2821.63

4354.51

5053.98 5723.81

TATA AIG

26
26
25.5
26
25.95
26
26
26
26
26
26
26
0
26
26
26
26
26

6532.26

Source: IRDA, 2012

Discussion
With the deregulation of insurance industry in India since 1999, many private players have
got an opportunity to enter in Indias insurance markets. Since liberalization of financial sector we
have noticed that there is new trend of foreign direct investment in Indian insurance sector. FDI in
the Insurance sector, as prescribed in the Insurance Act, 1938, is allowed (26%) under the automatic
route. This will be subject to the condition that Companies bringing in FDI shall obtain necessary
license from the IRDA for undertaking insurance activities in Indian insurance sector. Many foreign
institutional investors are investing in insurance sector of India, because of easy norms through
automatic rout and less restriction on FDI. Recent scenario indicates that out of 24 insurance
companies including LIC overall FDI is 25.47 percent in 2012. However, the government has not
allowed FDI in Life Insurance Corporation in India still 100 percent investment is made by the Govt.
of India. Rs. 6324.27 of equity capital is invested by the foreign investors in 22 life insurance
companies in India out of 23 private insurance companies (except SAHARA Insurance) and Rs.
18507.65 invested by Indian promoters.
Conclusions
The statistics received from the IRDA indicates that there is better growth trend in FDI in life
insurance sector and it shows significant growth since 2007-08. Having analyzed in brief the history
of insurance sector of the private insurance companies, it becomes pretty evident that the
Government is acting as a roadblock to the economic development of the country by not increasing
the cap on FDI in the insurance sector to 49%.

References
1. Mishra Vinay V. and Bhatnagar Harshita (2009), Foreign Direct Investment In Insurance
Sector In India, MqJBL (2009) Vol 6 pp-203
2. FDI Circular, 2012 (2012), Consolidated FDI Policy, Department of Industrial Policy &
Promotion, Ministry of Commerce & Industry, Government of India.
3. Amanulla Khan (2012) , More FDI in insurance will undermine economic security, The
Hindu, Interview,
4. December 5, 2012 http://www.thehindu.com/opinion/interview/more-fdi-in-insurance-willundermine-economic-security/article4164620.ece Accessed 22/02/2013
5. Yashwant Sinha (2013), BJP willing to go with Govt for raising FDI in insurance to 49 pc,
ET Bureau Feb 11, 2013, http://articles.economictimes.indiatimes.com/2013-0211/news/37039110_1_insurance-sector-fdi-cap-irda-act Accessed 12/02/2013
6. Annual Reports IRDA, 2008 t0 2012