Global Leadership Summit: IRDAI Chair calls for 100% FDI in insurance sector to drive growth and expertise
In an interview with CNBC-TV18, Panda said, “If 100% FDI is allowed, it will not only bring in the necessary growth capital but also global expertise and technology.”
Allowing 100% FDI will provide foreign insurers the flexibility to operate independently, design bespoke growth strategies, and infuse capital without reliance on domestic partners, Panda added.
According to Panda, foreign investors have shown keen interest in India’s insurance sector, encouraged by the nation’s robust economic growth, expanding middle class, and revamped regulatory framework.
Panda reiterated IRDAI’s ambitious goal of achieving “insurance for all” by India’s centenary in 2047. This aspiration, he explained, is underpinned by a multi-pronged strategy: revamping the regulatory framework, leveraging technology and data, reaching underserved regions, and ensuring the sector’s stability. “We are confident of achieving this milestone with a well-structured roadmap,” he said.
Listing insurance companies on stock exchanges is another priority for Panda, as it fosters transparency, improves investor confidence, and provides companies with access to capital.
Currently, only 10 insurance companies, including life, general, health, and reinsurance firms, are publicly listed. IRDAI is actively engaging with insurers to encourage public offerings for companies meeting criteria related to age, scale, and asset size.
“Listing is a natural progression. It enhances disclosures, delivers value to policyholders and investors, and bolsters customer confidence,” Panda remarked. He expects more companies to prepare for public listing in the coming years as part of the sector’s evolution.
Below is the verbatim excerpt of the interview.
Q: There is a lot of criticism that 60% of the healthcare expense is still happening out of pocket in India, more than half of the vehicles still not having a valid motor insurance policy, accident insurance policy probably being the last priority for small and medium enterprises. What would be that one line that you would want to tell your critics or the sceptics here of this aspiration of insurance for all by 2047?
Panda: First of all, we have to be aspirational. We are a huge country with a population which is young, so we have to have aspirational targets and goals. But why we are confident that we will be able to achieve what we should be achieving, that is insurance for all by 2047, we have worked to a plan. We are working on a strategy. So we are refining the present – that is the new architecture, the regulatory architecture, then leveraging technology and data. Third, reaching out to the last mile. And fourth, by being future-ready, because we have to also make sure that the sector remains stable at all points in time. The policyholders’ funds are protected and kept safe and secured all points of time. So all of this is going to pave the way for insurance for all by 2047 and I am pretty confident that with this road map, we will be able to reach there.
Q: If you look at the sector today, there are about 27 life insurance companies, 25 general insurance companies, and seven health insurance companies. In your understanding to cater to a population of 1.4 billion people, do you think the sector needs consolidation and larger insurance companies? Or do you think we need many more insurance companies of different sizes right now?
Panda: I think it’ll be a combination of all. The market will churn. Eventually, consolidation will also happen, the smaller ones who may not achieve the scale despite having been there for a sufficiently long period of time in the market, there could be consolidation. Then at the same time, you will see new players entering the field, because of the strong economic growth of the country, the revamped regulatory architecture, thirdly, the purchasing power being enhanced, the widening middle class. So all of these are drivers of growth, and it’s bound to happen. And we see that there is a lot of interest being evinced by global investors to come and invest in the Indian insurance industry.
Q: Out of 27 life insurance companies today, only five are listed on stock exchanges, which means they’ve gone public. Out of 25 general insurance companies, we just have two companies which are listed. What would be your take on insurance companies going out in the public and listing and making people a part of their growth story as well, especially for the companies which have spent some time in the industry and are sizable in terms of the kind of business that they do?
Panda: I fully agree that listing would be a natural progression once you achieve the scale, size or age, you got to list the company, and it should happen. Listing also brings in a lot of benefits, in terms of better disclosures, more value for the policyholders, and more value for the investors. It would enhance customer confidence. It would even open up access to raising more capital, and it would support growth, and innovation. So all of that follows with the listing of a company.
So the number of companies which are listed in life, we have four. In general, we have three in the standalone health insurance space we have two. And NIVA Bupa is getting listed. Then we have one reinsurer. So the total number is 10 at the moment, and we are in engagement with the industry that once the criteria of either the age or the scale criteria, and we are nudging them to go for listing. And I expect that you will see in the coming months and years, more companies going for listing, or at least preparing that road map.
Q: What are the criteria in terms of age? Should it be 10 years, or 12 years that the company should consider listing?
Panda: As I said age, you also look at the scale. Maybe you look at the AUM. What is the total size of the AUM for life insurance? So it’s not one or the other, but we will look at all of this and then shortlist that these are the companies which are ready to go.
But you also see there are companies who haven’t attained that age also have gone and listed. So the whole idea is to keep nudging. But those who have attained size, scale, and also the age should go for listing. So that is what we will be doing in the coming future. And we are already engaging, and we’ll have more intense discussions.
Q: One question as far as the foreign direct investment in the insurance sector is concerned. Now, when the FDI was raised to 74% from 49% it did not garner a lot of interest from foreign players. Now, what do you think? What is your view on the regulator’s view on increasing the FDI limit in insurance from 74% should it be taken to all the way at 100? And are you hopeful that if it is taken 100% there will be very strong interest coming from global players to have their own insurance company in India, solely by themselves, and hence bring a lot of foreign capital?
Panda: We will look at FDI. This is a capital-intensive sector. Insurance is not different from banking or any other sector. Rather, the insurance sector is about 400 to 500 times more leveraged. Now given that the insurance sector is poised for a substantial growth of between 15% and 18% annually, and there are certain reports also which clearly forecast that the insurance premiums in India will rise by more than 7% in real terms over the next five years, and that would outperform the global average of 2.4% and for the emerging markets it is around 5% and for advanced market 1.7%. So if that is the kind of scale and size in which the Indian market would grow, Obviously adequate growth capital will be vital to harness this potential. So therefore, if we depend only on domestic resources, then the crowding out effect will play out. So therefore we have to perhaps look at FDI also, and if 100% FDI is allowed, along with the growth capital, or the required capital, it will also bring in global expertise. It will bring in, capacity, and technology. So all of that is definitely bound to happen.
So perhaps this has become the opportune time for having 100% FDI. The players who come with 100% FDI, can plan their business independently. They can decide on their growth plan. They can decide what kind of business they want to ride. They can infuse the capital very promptly and easily because they don’t need to depend upon their domestic partner. So all of this will also be a concomitant benefit which will accrue. But, I’m sure that the government will take a decision on this at the appropriate time.
Q: You’ve been doing a lot of road shows overseas as well. When you speak to a lot of these foreign investors and insurance companies, what do they have to say?
Panda: They can plan their businesses independently; they don’t need to search for a domestic partner who would match their expectations. Then they would decide what will be the growth plan, they would bring in the capital as per their own plan and design. So all of that flexibility will come in and they will be able to grow the manner in which they intend to grow. So, that will be helped by allowing 100% FDI.
Q: The group of ministers on GST, suggesting removal of GST when it comes to health insurance, as well as term life insurance. Health insurance, as a portfolio to companies, the loss ratios there are increasing. Even if the GST cut comes through, and the benefits of that GST cut, let’s say, in a situation, are not passed on to the eventual policyholders, as a regulator, would you nudge and ask insurance companies to give full benefits of the GST cut, a potential GST cut, or a removal of GST on health insurance to the eventual policyholders?
Panda: I think we’ll be able to react when it happens. But typically these decisions will happen at the government, considering that whatever cut happens, if it happens, then the benefit passes on to the customer. So it could be implementation of the new GST rates sans the input tax credit (ITC). Then the entire benefit passes on to the customer. So it will be good for the sector in the sense that it maybe a big impetus for health and life term. So I’m sure the government will take a decision in the overall interest of the public and also the economy.
Q: Three most important things, awaited in the Indian insurance sector – the first one is of course, composite insurance license, the next one is risk based solvency, and the third one is IFRS. Out of these three composite insurance licenses is in the hands of the parliament in terms of a final approval, but the other two are in the hands of the regulator. I want to understand the timing on these two things. One, do you expect the composite insurance license, the approval for it to come in the winter session of the Parliament, and for it to be applicable from April 1 2025 and the other two things, IFRS and risk-based solvency, those are in your hands by when do we see them getting applicable?
Panda: So the first question you have yourself answered. So I will not go into that as to when it will happen. The moment it comes, it is welcome, the earlier the better. So that is something which will be known to all of us as and when it happens.
The second issue is regarding the risk-based capital regime and the IFRS, and also I said a risk-based supervision framework, which we are trying to establish for a more robust and resilient risk and prudent risk management framework. So we are in the middle of the journey, in the sense, the first qualitative impact study (QIS) has also has already been completed as far as the risk-based capital framework is concerned, the results are with us. We have recently had a meeting with the life insurers, with the general insurers and all the reinsurers to see the results and share the findings of those results. So we are, as I said, in the middle of this journey. We will be looking at a little more deeper into the various kind of risks that were factored in this first QIS. If there is any need to tweak them and bring in new risk parameters as well, then QIS two will be done sometime in the next three to four months. And so if I have to indicate a tentative timeline, then probably, I mean, it’s not a final one, because this will evolve, it is a very complex process. We need to take all the stakeholders also on board and make sure that the transition is also a smooth one and as painless as possible. But in the long run, we do understand that the risk-based capital regime is a more efficient way of utilisation and allocation of capital. So obviously everybody will benefit in the long run. So the timeline for the risk-based capital – a parallel submission could start in FY26 and the full-scale rollout in FY27.
As far as the IFRS is concerned, work is in progress, so it is more of a principle-based approach you would understand and appreciate. So recently, we have commenced the gap assessment study. So the experiences were shared in the last 11th and 12th meetings that we had this November. And based on that, further work will start, or it has already started. So what we are expecting, again, a very tentative kind of timeline I’m making at this point of time, not hard and fast, that the parallel run should start somewhere in FY25-26 and the full-scale implementation could happen in FY27-28 so that is the tentative timelines that we are trying to set for ourselves, along with the industry partners. And as far as the risk-based supervision framework is concerned, FY25-26 is our target, and somewhere between FY25-26, we would like to start rolling out the risk-based supervision framework.
Q: I want to ask you about the reinsurance capacity in India. We just have one domestic, homegrown reinsurance company that is GIC-RE. And what that does is that a lot of money, funds from India are still going to cross the border, reinsurers outside the borders of the country. The second thing, what, that has been happening is that insurers are taking more and more, retaining more and more risks on their books. Does the situation of insurers retaining more and more risk because of lack of reinsurance capacity concern the regulator at this point of time, and to get more domestic, homegrown reinsurance companies, what’s the plan?
Panda: Let me first give you a couple of numbers – the premium that we had collected last year, that is FY23-24 that is as on 31 March 2024 was ₹11.2 lakh crores. Out of which life was ₹8.30 lakh crores and non-life ₹2.90 lakh crores. So against ₹11.2 lakh crores, around ₹92,000 crores can be assigned to the reinsurance also. This amount is also growing, and the reinsurance market is also growing at around 13-14%. By October 2024, means the first seven months, we have already earned a premium of about ₹6.5 lakh crores, registering a growth of about more than 12% and we are still left with five months. And we hope that this momentum will continue.
So what I’m trying to say is that the reinsurance market will definitely also grow, and with new, newer risk coverages and a lot of other changes that we are witnessing in the market, and the manner of discretionary spend, surely and definitely this is going to grow, so more and more reinsurance capacity and support will be required.
Now what has the regulator done? The regulator also has taken several steps to completely change the reinsurance landscape, one from the ease of doing business, and two, also making it more attractive. How? What we have done is that, the cross-border insurers, the entire ecosystem now are allowed to obtain lead terms, and also the placement will also be made commensurate with the courts, and everybody will be allowed so it’s more of a level playing field.
So while, on one hand, we are trying to increase the capacity of the sector, we are also trying to enhance the technical competence, parallelly attracting more number of players, and as I said, ease of doing business, and also a level playing field. So obtaining lead terms, there were certain restrictions we have removed, and also placement we have eased considerably.
So the order of preference which existed earlier for placement of the reinsurance business has been reduced from six levels to four levels. Today, after the GIC, which is the only domestic reinsurer, all the FRBs and the offices which have been established in IFSCA GIFT City, Gandhinagar, which are called the IIOs, they are at the same footing, because they will invest 100% of the premiums within the country, and therefore they are given the same order of preference.
So I think now the cross border reinsurers, will get attracted to come to the Indian market. They will obviously get a better deal if they go to the GIFT City IIOs, because there are some additional benefits that they will get. However, they can also come to the domestic tariff area, given the new dispensation that has been provided, both in the submission of lead terms and in the placement of business. And they are being kept at par as far as the allocation or the placement is concerned in the order of preference.
Furthermore, we have also revised the requirement of the assigned capital. We have brought it down from ₹100 crores to ₹50 crores. And furthermore, if there is a surplus capital lying in the Indian entity, then that can be repatriated so that it could be used elsewhere. That flexibility has also been provided which was being demanded by the reinsurers.
Even the regulatory returns and the application process for the FRNs, all of that has been rationalised and made easy to a large extent. So the entire ecosystem has been revamped, and that makes it more attractive for the CBRs to set up offices or shops in GIFT City.
So we feel that going forward and in the months and years to come, we will see more CBRs coming and establishing their shops in India.
Q: You’ve been in that position, and you’ve initiated so many structural reforms in the sector in the recent past, your term ends in March 2025. If the government is open to offering you an extension when it comes to the position of IRDAI chairperson, would you be open to accepting it and extending your term?
Panda: It’s been a privilege and an honour to serve in this role. And with wonderful teamwork at IRDAI and equal measure the response of the stakeholders, I think we have been able to achieve what we have made in the last 24 months. So I think the momentum and the energy will actually propel future growth. So we have collectively embarked upon the journey towards insurance for all by 2047 and I’m sure that we will be there. A lot more work is required to be done. However, at the end of the day, I would say that the institution matters, not the persons.
