As the Union government allowed 100 per cent Foreign Direct Investment (FDI) in the insurance sector in the last budget, a parliamentary standing committee has recommended safeguard measures to ensure that foreign investors do not repatriate all their earnings but also reinvest them in the country.
The Parliamentary Standing Committee on Finance, chaired by BJP MP Bhartruhari Mahtab, in its report on 'demands for grants of finance finance ministry' stated: “The downsides of FDI in India’s insurance sector must be addressed adequately and scrupulously.”
The panel raised concerns not only about profit repatriation—where foreign investors send their earnings back to their home countries instead of reinvesting in India—but also about the reduced decision-making power of domestic firms and job security issues. It warned of potential automation, cost-cutting measures, and a focus on high-margin policies, which could lead to the neglect of rural and financially weaker sections.
The finance secretary, in his submission to the panel, argued that India has one of the lowest insurance penetration and density rates in the world.
“Our objective is to ensure that both people and assets have risk coverage. While domestic companies are organically investing and growing, their efforts alone are insufficient to achieve our goal of insurance for all by 2047,” he stated.
“Therefore, we are allowing 100 per cent FDI in insurance, but we have also put safeguards in place to ensure that premium amounts are invested within the country.”
The last budget announced an increase in the FDI limit from 74 per cent to 100 per cent, along with the proposed removal of the cap under the Insurance Laws (Amendment) Bill, 2025. This move aims to attract stable foreign investments, enhance competition, facilitate technology transfer, which in turn would improve insurance products, enhance customer service, and bring down the premiums.
The Committee acknowledged that FDI has the potential to introduce global best practices and improve insurance penetration and density in the country.
Referring to the integration of InsurTech (Insurance Technology) in the sector, the Committee observed that it could enhance efficiency, customer experience, and risk assessment. Advanced digital technologies such as artificial intelligence, big data analytics, and blockchain can streamline underwriting, claims processing, and risk evaluation, making insurance more accessible and efficient.
The Committee also highlighted that wider adoption of digital platforms could enable insurers to reach underserved rural and semi-urban markets, thereby driving inclusive growth and strengthening India’s insurance ecosystem.
The objective of raising the FDI limit in the insurance sector is to unlock its full potential, with projections indicating a 7.1 per cent annual growth rate over the next five years, outpacing global and emerging market trends.
