July 24, 2015

The Insurance Regulatory and Development Authority of India (IRDA) has ruled out allowing 100 per cent foreign direct investment (FDI) in the insurance broking business. “There is no plan to allow 100 per cent FDI in insurance broking,” said a top official.

In 2013, Irda had appointed a committee under its senior director Suresh Mathur, Sr joint director, Irda, to look into the possibility of 100 per cent FDI in broking business as the Insurance Act did not specially mention about limiting FDI to 26 per cent in broking. As the Parliament has allowed 49 per cent FDI in insurance, and subsequently FIPB has said insurance broking industry will abide by the 49 per cent FDI, the insurance regulator has said FDI in broking will now continue to be restricted to 49 per cent.

With foreign players pressing for 100 per cent FDI in broking business, an intense tussle was on between foreign and Indian insurance brokers on the issue of higher FDI. Even with 49 per cent FDI limit, there are many instances where (holding 51 per cent collectively but in a fragmented form) the foreign partner is the ‘largest shareholder’ for all practical purposes. With 100 per cent FDI, the foreign broker will become the “sole shareholder”, local brokers had complained to Irda.

An official of the Insurance Brokers Association said, “Irda has clarified that there is no move to raise the FDI further from 49 per cent to 100 per cent. We had sought clarification from IRDA and the insurance regulator has made its stand clear.” The broker association had argued that the broking industry falls under the SME category and 100 per cent FDI will harm the domestic industry. In view of the less capital requirements for the reinsurance broking companies, the margin of the profit that the foreign reinsurance broking companies would earn will be an outflow from Indian financial system, local firms said.

After the Parliament passed the 49 per cent FDI stake, foreign insurance brokers started lobbying to raise this stake to 100 per cent but Irda seems to have turned it down as the rules governing broking business may now require another amendment by Parliament. Foreign players have been arguing that higher FDI is required to bring in required expertise, connectivity and experience. There are around 400 members who handle 20 per cent of the Rs 84,000 crore premium generated by the Indian general insurance industry.

– See more at: http://indianexpress.com/article/business/banking-and-finance/irda-says-no-to-100-fdi-in-insurance-broking-biz/