According to data from Crisil Intelligence, of the 26 life insurance companies, 20 have a foreign partner. Among them, only four partners hold a 74% stake in Indian companies
Finance Minister Nirmala Sitharaman’s proposal to raise the foreign direct investment (FDI) limit in the insurance sector from the current 74% to 100% has received mixed reactions from the industry. While some are optimistic about attracting more global insurers to India, others argue that FDI alone won’t be enough to drive growth.
“We have not seen significant FDI inflows after the limit was raised from 51% to 74%,” Kotak Institutional Equities stated in its post-budget note.
Over the past decade, the Indian government has eased FDI limits in the sector to increase insurance penetration, which stood at just 3.7% in FY24—far below the global average of 7%.
However, experts note that even three financial years after the FDI cap was raised to 74%, there hasn’t been a significant surge in inflows.
India has 59 insurance companies. According to data from Crisil Intelligence, of the 26 life insurance companies, 20 have a foreign partner. Among them, only four partners hold a 74% stake in Indian companies, while five hold between 49% and 74%.
Among the 25 general and health insurers, 13 companies have a foreign partner, with five holding stakes of 49% or more. Of the eight specialised health insurers, only three have a foreign partner, and two have foreign holdings of 49% and above.
The hope is that with complete foreign ownership now an option, global investors may increase capital deployment in the Indian insurance sector without the requirement of having a domestic partner.
"It will give insurers wider options for raising capital, which will be particularly important ahead of the transition to IndAS and a risk-based solvency regime. Also, with complete foreign ownership now on the table, willing foreign investors can increase capital deployment in the Indian insurance sector without the caveat of a domestic partner having to contribute capital on a pro-rata basis," said Subhasri Narayanan, Director, Crisil Ratings Ltd.
Analysts and industry executives argue that the Budget proposal is unlikely to bring material changes to the industry. In an interview with The Economic Times, HDFC Life MD & CEO Vibha Padalkar noted that since the FDI limit was raised to 74%, only three companies have taken advantage of the higher cap, and even among them, there hasn't been a significant shift in market share.
Moreover, several global insurers—such as Standard Life (now known as ABRDN Plc.), New York Life Insurance Co., and Old Mutual Ltd—have exited the Indian market.
Prithvish Uppal, Vice President, Equity Analyst for Non-Lending Financials at Elara Capital, points to two key reasons: the pre-existing concentration of large players and the long wait for profit generation.
“Over the last seven to eight years, market share concentration has persisted among a few large players, including LIC, HDFC Life, SBI Max, TATA AIG, and Bajaj. The top seven to eight players control close to 80% of the market,” Uppal said. He added that LIC’s traditional dominance and the entry of banks into the insurance sector as major distributors have left little to no room for other players.
“At least for life insurance, the gestation period for profit generation is around seven to ten years. This is because of the high strain from new business, where whatever growth you achieve initially is not sufficient to underwrite the new business and turn profitable,” Uppal added.
Furthermore, large insurers have shown reluctance to cede control to foreign investors. For instance, HDFC Life capped foreign ownership at 49%. Last year, Germany’s Allianz Group announced the breakup of its 26% joint venture with Bajaj Finserv due to the latter’s unwillingness to increase its stake.
Analysts note that smaller players could benefit from the 100% FDI limit. However, their limited distribution networks might discourage foreign investors. This concern is compounded by the overall decline in insurance penetration in India.
According to the Economic Survey 2024-25, released before the Budget, India’s insurance penetration fell from 4% in FY23 to 3.7% in FY24. Life insurance penetration declined marginally from 3% in FY23 to 2.8% in FY24, while non-life insurance penetration remained stable at 1%.