{"id":8174,"date":"2021-09-03T09:16:53","date_gmt":"2021-09-03T09:16:53","guid":{"rendered":"https:\/\/swaritadvisors.com\/blog\/?p=8174"},"modified":"2021-09-03T09:16:55","modified_gmt":"2021-09-03T09:16:55","slug":"insurance-companies-foreign-investment-amendment-rules-2021","status":"publish","type":"post","link":"https:\/\/swaritadvisors.com\/blog\/insurance-companies-foreign-investment-amendment-rules-2021\/","title":{"rendered":"Insurance Companies (Foreign Investment) Amendment Rules 2021 &#8211; An Overview"},"content":{"rendered":"\n<p class=\"has-drop-cap\">Recently the Finance Ministry of India issued the <strong><em>Indian Insurance Companies (Foreign Investment) Amendment Rules, 2021<\/em><\/strong>, which amend detailed provisions of the Indian Insurance Companies (Foreign Investment) Rules, 2015 to clearly provide the rules that insurance companies with foreign investment should follow. But before we discuss this new amendment, let&#8217;s first understand the meaning of FDI and the role of IRDAI.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a3abb98f0580\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a3abb98f0580\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/swaritadvisors.com\/blog\/insurance-companies-foreign-investment-amendment-rules-2021\/#What_is_FDI\" title=\"What is FDI?\">What is FDI?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/swaritadvisors.com\/blog\/insurance-companies-foreign-investment-amendment-rules-2021\/#IRDAI_%E2%80%93_Background\" title=\"IRDAI \u2013\nBackground\">IRDAI \u2013\nBackground<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/swaritadvisors.com\/blog\/insurance-companies-foreign-investment-amendment-rules-2021\/#Redrafting_of_the_Indian_Insurance_Companies_Foreign_Investment_Amendment_Rules_2021\" title=\"Redrafting of the Indian Insurance Companies (Foreign Investment) Amendment Rules 2021\">Redrafting of the Indian Insurance Companies (Foreign Investment) Amendment Rules 2021<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/swaritadvisors.com\/blog\/insurance-companies-foreign-investment-amendment-rules-2021\/#Importance_of_Indian_Insurance_Companies_Foreign_Investment_Amendment\" title=\"Importance of Indian Insurance Companies (Foreign Investment) Amendment\">Importance of Indian Insurance Companies (Foreign Investment) Amendment<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/swaritadvisors.com\/blog\/insurance-companies-foreign-investment-amendment-rules-2021\/#Insurance_Penetration_in_India\" title=\"Insurance\nPenetration in India\">Insurance\nPenetration in India<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/swaritadvisors.com\/blog\/insurance-companies-foreign-investment-amendment-rules-2021\/#What_is_MIV\" title=\"What is MIV?\">What is MIV?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/swaritadvisors.com\/blog\/insurance-companies-foreign-investment-amendment-rules-2021\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_FDI\"><\/span>What is FDI?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>FDI\nstands for Foreign Direct Investment is the investment made when the entity\ntakes Authorityauthority or ownership of a business entity in another country.\nThere is the direct participation of the foreign companies with the FDI for the\nregulation of the regular operations in another country. Generally, Foreign Direct\nInvestment occurs when an investor develops foreign business activities or gets\nforeign business assets, like getting ownership or Authorityauthority of a\nforeign company. In open economies with skilled human resources and expansion\npotential, FDI is extensive. In India, FDI had rapidly increased when the\neconomic liberalisation was initiated in the wake of the massive crisis in the\nyear 1991. Today India is ranking number 1 in the <strong><em>Greenfield FDI<\/em><\/strong> globally.<\/p>\n\n\n\n<p>For\nthe past few years, in India, stakeholders in insurance firms have recommended\nan increase in the FDI, in line with the FDI maximum for the banking-the\nprivate sector. On February 01, 2021, the Finance Minister of India announced\nas a part of the National Budget Address for the F.Y 2021-22, that the FDI cap\nfor Indian insurance companies would be increased from 49% to 74%. &nbsp;Moreover, it was declared under the new\nframework that,<\/p>\n\n\n\n<ul><li>Most directors on the Board and key management personnel would have to be the Indian resident;<\/li><li>A definite percentage of the profit of the <strong><a href=\"https:\/\/swaritadvisors.com\/insurance-company-registration\" class=\"text-primary\">insurance company<\/a><\/strong> would have to be donated to the Government;<\/li><li>Foreign Authorityauthority and ownership would be permitted with protections;<\/li><li>50% of directors would have to be independent directors. <\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"IRDAI_%E2%80%93_Background\"><\/span>IRDAI \u2013\nBackground<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>In\n1950, the insurance industry of India was nationalised by the Indian\nGovernment, and <strong><em>LIC or Life Insurance Corporation<\/em><\/strong> was established. By taking\nthe decision in the 1990s, the insurance sector was opened up to the private\nplayers. To establish the suggested reform, a committee was established and\nlater, as a decision part of the committee, IRDAI was set up. When the market\nwas opened in 2002, the stake limit which the foreign firms were permitted to\nbuy was up to 26%, which later was capped at 49% by the Indian Government. Ultimately,\nin Budget 2020, the limit was increased up to 100%.<\/p>\n\n\n\n<p><strong><em>Insurance\nRegulatory &amp; Development Authority of India<\/em><\/strong> is an\nindependent and legal agency charged with managing and regulating India&#8217;s\ninsurance industries and reinsurance industries. It includes a ten-member body\ncomprising a chairperson, five full-time members and four part-time members.\nThe primary role of IRDAI is to safeguard the insurance policyholder&#8217;s\ninterests and ensure a fair result. IRDAI also has to keep a check that the\ninterests of an ordinary person are not undermined by keeping an eye on the\npolicy issuers. An increase of 11.36% was seen in collective premium income to\nRs. 48.26 trillion at the time of Financial Year, which ended in March 2020. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Redrafting_of_the_Indian_Insurance_Companies_Foreign_Investment_Amendment_Rules_2021\"><\/span>Redrafting of the Indian Insurance Companies (Foreign Investment) Amendment Rules 2021<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Indian\nInsurance Companies (Foreign Investment) Amendment Rules, 2021 provides us with\nthe rules &amp; regulations that have to be followed by all insurance companies\nhaving foreign investment. The new amended rules stated as:<\/p>\n\n\n\n<ol><li>As per the <strong><em>Rule 2(o)<\/em><\/strong>, the word <strong><em>\u201cResident\nIndian Citizen\u201d <\/em><\/strong>should have the meaning accorded to it in any FDI\nstrategy that the Government may prepare from time to time;<\/li><li>According to the <strong><em>Rule\n2(p)<\/em><\/strong>, total foreign investment has been describing as the sum of the\ndirect &amp; indirect foreign investment by the foreign investor in such a\ncompany, which is estimated as per the manners that are suggested in the\nregulations made by the Authorityauthority concerning registration of all\nIndian insurance companies;<\/li><li>According to <strong><em>Rule\n4<\/em><\/strong>, most directors, senior management personnel, and at least one of the\nchairpersons of the Board, CEO, and managing director of Indian insurance business\nwith foreign investment should be Indian citizens;<\/li><li>Every Indian insurance company\nwith overseas investment that existed on or before the begging of the Indian Insurance\nCompanies (Foreign Investment) Amendment Rules, 2021 should comply with the\nprovisions mentioned as mentioned in <strong><em>sub-rule(1)<\/em><\/strong>, within 1 year of such\nbeginning;<\/li><li>An Indian insurance company\nhaving overseas investment exceeding 49% for a Financial Year for which the\ndividend paid on equity shares &amp; for which at any time the solvency margin\nis less than 1.2 times the level of control of solvency, not less than 50% of\nthe total profit for the Financial Year shall be maintained in general reserve;\nand not less than 50% of its director, in which at least one-third of its Board\nshall include of independent directors as mentioned in <strong><em>Rule 4(a);<\/em><\/strong><\/li><li>According to <strong><em>Rule 5,\n<\/em><\/strong>49% shall be substituted with 74%<strong><em>;<\/em><\/strong><\/li><li>According to Rule 8, for the\nletters &#8220;FEMA:, the words, figures, and brackets <strong><em>\u201cFEMA Act, 1999 (42 of 1999)\u201d<\/em><\/strong>\nshall be substituted.<\/li><\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Importance_of_Indian_Insurance_Companies_Foreign_Investment_Amendment\"><\/span>Importance of Indian Insurance Companies (Foreign Investment) Amendment<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ol><li>It&#8217;s good from the viewpoint of\nthe promoters as they can keep control of the management &amp; the Board and\nalso the extra capital inflow generated would aid them with funds that will guide\nthe country&#8217;s growth;<\/li><li>It is of beneficial to the\nsmall insurance participants or the ones where the sponsors don&#8217;t have to put\nin much capital;<\/li><li>As India has the minimum\ninsurance penetration level worldwide, it will aid the local private insurers\nto grow &amp; develop faster;<\/li><li>The growth in foreign\nproprietorship to 74% could lead to the adoption of worldwide best practices in\ninsurance products in the future. It would also help in the decrease of\ninsurance product costs in India;<\/li><li>Insurance Companies (Foreign\nInvestment) Amendment will also aid in fortification and building healthy\ncompetition across the industry.<\/li><\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Insurance_Penetration_in_India\"><\/span>Insurance\nPenetration in India<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Presently,\ninsurance penetration in India is at <strong><em>3.7% of the GDP<\/em><\/strong> as compared to the world&#8217;s\naverage of 6.3%. The growth of the life insurance industry has decreased from\n11% to 12% from 15% to the 20% till the Fiscal year 2020, as the Covid-19\npandemic has prompted clients to save money rather than invest in insurance\nplans or stock markets.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_MIV\"><\/span>What is MIV?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The <strong>IRDAI<\/strong><sup><a href=\"https:\/\/www.irdai.gov.in\/\" class=\"text-primary\"><strong>[1]<\/strong><\/a><\/sup> establishes Model Insurance Villages (MIV) to make the idea of insurance penetration in India and the benefits of insurance understandable in rural areas and encourage India&#8217;s insurance penetration. Financial help should be sought from <strong><em>NABARD (National Board for Rural Agricultural &amp; Development), <\/em><\/strong>other institutions, Corporate Social Responsibility funds, reinsurance companies &amp; government support to make the premium affordable. In the initial year, it will be performed in at least 500 villages across India, with an increase to 1000 villages in the following two years. For the steering of the concept, every general reinsurance &amp; insurance company that accepts general insurance business &amp; has operations in India should be involved. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Lucidity\nhas been given with the introduction of the Insurance Companies (Foreign\nInvestment) Amendment Rules, 2021, on the governance rules required by the\nentities having a foreign investment of more than 49%. These rules will also be\nappropriate to the private equity investments irrespective of whether it\u2019s a\ndirect investment or indirect investment according to the Insurance Companies\n(Foreign Investment) Amendment Rules, 2021. It is not clear that how insurance\ninvestments will be prepared in the future and whether the notification of the\namending rules will prevent insurance companies &amp; global investors from\ncontemplating the private equity investment structure.<\/p>\n\n\n\n<p>Moreover, changes to the framework are probable to match it with the revisions made by the amendment act &amp; rules. Additionally, it is possible that the requirements for amendment rules will develop a change in the insurance business are examined, such as the impact of increased FDI on policyholders.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/swaritadvisors.com\/blog\/general-insurance-business-nationalisation-amendment-bill-2021\/\">General Insurance Business (Nationalisation) Amendment Bill, 2021<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Recently the Finance Ministry of India issued the Indian Insurance Companies (Foreign Investment) Amendment Rules, 2021, which amend detailed provisions of the Indian Insurance Companies (Foreign Investment) Rules, 2015 to clearly provide the rules that insurance companies with foreign investment should follow. But before we discuss this new amendment, let&#8217;s first understand the meaning of [&hellip;]<\/p>\n","protected":false},"author":6,"featured_media":8175,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[43],"tags":[837],"acf":[],"_links":{"self":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/8174"}],"collection":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/comments?post=8174"}],"version-history":[{"count":5,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/8174\/revisions"}],"predecessor-version":[{"id":8182,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/8174\/revisions\/8182"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media\/8175"}],"wp:attachment":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media?parent=8174"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/categories?post=8174"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/tags?post=8174"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}