100% FDI will attract major global insurers, boost competition in India’s insurance market, says expert
Speaking to CNBC-TV18, Sathe explained that global players like Berkshire Hathaway, UnitedHealth, and others are waiting for this policy shift to enter the Indian market. “The existing players are keen on increasing their stake to 100%, and many life and general insurance companies which are much bigger globally have not entered India yet. They are awaiting the 100% FDI approval,” he noted.
However, Sathe highlighted a crucial caveat: the policy must ensure clarity on control and ownership requirements. Past restrictions, such as the mandatory Indian ownership clause introduced when the FDI cap was raised to 49%, deterred foreign companies. Although this requirement was removed when the limit increased to 74%, Sathe emphasised that consistency in policy is essential to maintaining investor confidence.
He also advocated for 100% FDI to be granted via the automatic route rather than on a case-by-case basis. “Even for 74% or 49%, it was on an automatic basis. So why should there be a change? We should not keep changing our policies back and forth,” he argued.
The proposed amendments to insurance laws also include the introduction of composite licenses, allowing insurers to operate across life, general, and health segments. Sathe sees this as a significant step forward, enabling companies like LIC, with its extensive agent network, to diversify their offerings. He dismissed concerns over the operational challenges, pointing out that technological advancements make it easy to manage separate accounting for different lines of business.
Below are the excerpts of the interview.
Q: Since we’re speaking about taking the FDI to 100% from the current 74% in a sensitive sector like insurance, I want to understand from you, in your sense and your reading, should this approval be given through an automatic route or an approval case-by-case basis by the government? And the second question is that when this FDI limit was raised from 49% to 74% not much happened in terms of action and interest from foreign guys. Now, when the proposal is expected to be raised to 100%, do you expect significant interest to come from foreign insurance players and could this be in the form of fresh licenses or acquisition of stakes in Indian insurers?
Sathe: It will happen in both forms—fresh licenses as well as the acquisition of stakes in Indian insurers. Because the existing players are also keen on increasing their stake to 100%. Secondly, there are many life insurance companies and general insurance companies in the world that are much bigger and have not entered the insurance area in India as of now. So they are also waiting for the 100% stake to enter.
Just an example of Berkshire Hathaway, UnitedHealth, Ping Insurance of China, and so on and so forth. There are many insurance companies that are much bigger and they are awaiting 100% FDI approval.
When FDI in insurance was made to 49%, there was a slight amendment where Indian ownership and control were required. Now that is something that has created a problem. So the foreign insurance companies primarily are of the view that if Indian ownership and control continues or is again restored, then they are not interested. Although it was removed when the stake was increased to 74%, but still from 26 to 49 when it was done, this is something that came in the way of foreign insurance companies entering the insurance market.
Q: And to your understanding, should this approval be given on an automatic basis or should it be a case-by-case approval mechanism which should be put in place?
Sathe: It should be on an automatic basis because even for 74% or 49%, it was on an automatic basis. So why there should be a change? We should not keep changing our policies back and forth.
Q: A word on the insurance amendment bill also and the most important aspect under that bill is the composite insurance license, which allows cross-entry of insurers. Do you think a very stringent process of approval should be put in place because underwriting a life insurance policy is a lot more complicated than underwriting a health insurance policy and hence a cross-entry should go through a stringent examination? And do you expect a significant shift in terms of the players entering the other side of the business as well?
Sathe: Some of the players are too keen on entering, like LIC. LIC agents are marketing insurance products of other general insurance and health insurance companies and they have a strong agency base. So if at all they enter this market, obviously their agents will sell their own products instead of going somewhere else. And again, there are many insurance companies which are keen on marketing the products of other lines of business. So there is definitely a scope and they have got everything in place, accounting is in place, all criteria are in place, outsourcing is in place. So what is required is only separate accounting of general insurance and life insurance business. Once that is done, and which is very easy to do nowadays, it’s not difficult. If you remember, before 1971, when the four general insurance companies were carved out, New India and others, LIC was doing this business. LIC was doing general insurance business. But that time, of course, the business was very, very small. What is important today is because of IT, it is easy to keep accounts separate. And it is not difficult to manage these businesses by insurance companies.
Q: One point under the insurance amendment bill is also reduction of the initial capital to start business. With that particular proposal and the approval there, do we run the risk of certain non-serious also entering the insurance space considering that the initial capital requirements could come down significantly?
Sathe: Nothing can be ruled out. But before nationalisation of insurance companies into LIC, the regulator was not strong. The provisions were not in place; the investment norms were not in place. Now everything is in place. So it is very difficult to bypass any of these rules and regulations. And let us give it a chance. I’ll give an example. Dubai has 68 insurance companies. What is the population of Dubai? And out of that, 60 are in profit. The UK has more than 400 insurance companies that are working. What is the population of the UK? One-seventh of India. Why we cannot have or should not have more insurance companies? And that is possible if line of business-wise or region-wise licenses are given and the capital requirement is reduced. Although it provides only 100 crores for life insurance and general insurance and 200 crores for reinsurance, you will find that all the insurance companies, without exception, have more than ₹1,000 crores of capital. To do more business, you need more capital.
So to start with, there is no need to have such a huge amount of capital. If you’re doing a business that has got a short tail, as we call it in technical term, means like motor business, where the claim is going to come in a year or two, or maybe in case of health in a year or two, why do you need so much of capital? Capital is always scarce, especially in developing countries, it is very, very scarce. So if at all option is given to start insurance companies, take the example of all these distributors of cars; they can have their own insurance company, and they will have their client base. What is wrong in that? And controls can be established. Now the regulator is very strict on this.
