Applications for foreign direct investment in an insurance company promoted by a private bank would be cleared by the RBI and IRDAI to ensure that the 74% limit of overseas investment is not breached.
What does one mean by Insurance?
Insurance is a contract, represented by a policy, in which an individual or entity receives financial protection or reimbursement against losses from an insurance company.
The company pools clients’ risks to make payments more affordable for the insured.
Insurance is a capital-intensive business so has to maintain a solvency ratio. The solvency ratio is the excess of assets over liabilities.
Simply put, as an insurance company sells more policies and collects premiums from policyholders, it needs higher capital to ensure that it is able to meet future claims.
In addition, insurance is a long gestation business. It takes companies 7-10 years to break even and start becoming profitable.
Types of Insurance
Insurance sector of India
The insurance regulator, the Insurance Regulatory and Development Authority of India (IRDAI), mandates that insurers should maintain a solvency ratio of at least 150 percent.
The insurance industry of India has 57 insurance companies 24 are in the life insurance business, while 34 are non-life insurers.
Among the life insurers, Life Insurance Corporation (LIC) is the sole public sector company.
In addition to these, there is a sole national re-insurer, namely the General Insurance Corporation of India (GIC Re).
Other stakeholders in the Indian Insurance market include agents (individual and corporate), brokers, surveyors, and third-party administrators servicing health insurance claims.
In India, the overall market size of the insurance sector is expected to US$ 280 billion in 2020.
Recent developments
The chronological order of events:
Nationalization of life (LIC Act 1956) and non-life sectors (GIC Act 1972)
Constitution of the Insurance Regulatory and Development Authority of India (IRDAI) in 1999
Opening up of the sector to both private and foreign players in 2000
Increase in the foreign investment cap to 26% from 49% in 2015
Increase in FDI limit from 49% to 74% in March 2020