On 1 February 2025, the Finance Minister (“FM”) announced that up to 100% foreign direct investment (“FDI”) will be permitted in Indian insurance companies. The FM’s announcement follows a public consultation process undertaken in connection with amendments proposed (the “2024 Draft Amendments”) to the Insurance Act, 1938 (“Insurance Act”) and the Insurance Regulatory and Development Authority Act, 1999 (“IRDAI Act”) to allow, among others: (a) FDI up to 100% in an insurance company; (b) composite licensing for insurers proposing to undertake more than one class of insurance business.

Please refer to our previous alert for an overview of the 2024 Draft Amendments.

Several amendments will be required to existing laws before the law can be implemented.

The FM has stated that 100% foreign investment will only be permitted in companies that invest their entire premium in India. Since this is already a requirement under currently applicable insurance laws, it remains to be seen if the intent is to introduce additional requirements in this regard. The FM has also announced that in addition to this liberalization, the existing conditions applicable to foreign investment (i.e. the requirement that majority of the board, KMPs and one amongst CEO or Chairman be resident Indian citizens and where foreign investment is more than 49%, that majority of the board comprise independent directors and conditions with respect to retention of profits) may be further simplified. To begin with, these conditions were not viewed as particularly onerous for foreign investors while considering increasing their foreign investment – however, any further simplification will definitely be welcome.

While the FM did not make any specific comments in relation to the other proposals in the 2024 Draft Amendments, the general expectation of the industry is that a number of the proposed amendments will be implemented. It is noteworthy that it took about seven months from the announcement of the increase in the FDI limit from 49% to 74%, for the actual amendments to be passed. For this increase however, news reports suggest that the amendments will be implemented in the budget session (Feb 2025 to March 2025) itself.

The increase of FDI to 100%, along with other relaxations proposed, will remove several challenges that foreign shareholders have faced while structuring their Indian business. However, this does not mean that all foreign investors would be keen to venture out entirely on their own, without a local partner. The knowledge of the Indian market and a local distribution partner are invaluable in structuring an insurance business in India and it is likely that Indian entities that can offer these, along with necessary capital, will see significant partnership opportunities from foreign investors and insurers.

Authors – Deepa Christopher – Partner and Rebha Dakshini – Managing Associate

Disclaimer: This alert only highlights key issues and is not intended to be comprehensive. The contents of this alert do not constitute any opinion or determination on, or certification in respect of, the application of Indian law by Talwar Thakore & Associates (“TT&A”). No part of this alert should be considered an advertisement or solicitation of TT&A’s professional services. This communication is confidential and may be privileged or otherwise protected by work product immunity.