The Standing Committee on Finance headed by BJP MP Bhartruhari Mahtab has urged the Finance Ministry to address the potential downsides of increased foreign direct investment (FDI) in India’s insurance sector with “adequate” and “scrupulous” measures.
While acknowledging the benefits of the proposed FDI limit hike from 74 per cent to 100 per cent under the Insurance Laws (Amendment) Bill, 2025, the Committee stressed the need for safeguards to mitigate risks such as profit repatriation, job security concerns, and the neglect of rural and financially-weaker sections.
The Committee noted that the government’s proposal on FDI hike to 100 per cent aims to attract stable foreign investments, foster competition, and enable technology transfer. These developments, it said, could lead to enhanced insurance products, better customer service, and more affordable premiums.
Concern over full foreign ownership
The panel highlighted that global best practices could improve insurance penetration and density in India. It, however, flagged concerns over the potential negative impact of full foreign ownership in the sector.
A key concern is profit repatriation, where foreign investors may prioritise sending earnings back to their home countries instead of reinvesting in India. The committee warned that such a practice could limit the long-term development of the domestic insurance industry. Additionally, the increased FDI could result in reduced decision-making power for Indian stakeholders, as foreign investors might push for strategies favouring short-term gains over long-term sectoral growth.
Another critical issue highlighted was job security. The Committee noted that greater foreign control could lead to cost-cutting measures, such as automation and downsizing, potentially affecting employment in the insurance sector. It stressed the importance of balancing efficiency gains with workforce stability.
The panel also expressed concerns about insurers focusing excessively on high-margin policies, which could lead to the neglect of rural and financially-weaker segments of the population. With foreign firms often prioritising profitability, there is a risk that policies catering to lower-income groups or those in remote areas may receive less attention. The Committee urged the government to ensure that insurance expansion remains inclusive and aligned with India’s broader financial inclusion goals.
Finance Minister Nirmala Sitharaman had, in her recent Budget speech, announced a hike in the FDI limit from 74 per cent to 100 per cent. This enhanced limit, she added, will only apply to companies that invest the entire premium in India. Sitharaman had said that the current guardrails and conditionalities associated with foreign investments will be reviewed and simplified.
On the bright side
Meanwhile, on a positive note, the Standing Committee recognised the transformative potential of InsurTech (insurance technology) in enhancing efficiency, customer experience, and risk assessment. It observed that advanced digital technologies, including artificial intelligence (AI), big data analytics, and blockchain, could streamline underwriting, claims processing, and fraud detection. These innovations, the panel noted, would make insurance more accessible and efficient, particularly in underserved rural and semi-urban markets.
The Committee emphasised that the widespread adoption of digital platforms could drive inclusive growth, helping insurers expand their reach beyond urban centres. By leveraging technology, the insurance sector can strengthen India’s financial ecosystem and ensure that policy benefits extend to a broader demographic.
While the Committee acknowledged the potential advantages of increased FDI in the insurance sector, it has strongly recommended a cautious approach.
