“Insurance Sector Opens to 100% FDI, Yet New Foreign Players May Stay Away”
Experts say high capital needs, intense competition and structural challenges may deter global insurers from setting up wholly owned operations despite policy liberalisation.
New Delhi: India’s decision to allow 100% foreign direct investment (FDI) in insurance companies marks a significant policy shift, but industry experts believe it is unlikely to result in an immediate influx of new foreign insurers establishing wholly owned operations in the country.
The government has notified the Indian Insurance Companies (Foreign Investment) Amendment Rules, 2025, aligning foreign investment norms with amendments to the Insurance Act that permit full foreign ownership. The notification removes references to the earlier 74% FDI cap and expands foreign investment to include foreign venture capital investors under the non-debt instruments rules of the Foreign Exchange Management Act.
Despite the liberalisation, market participants point to structural and commercial challenges that could limit near-term impact. Setting up a greenfield insurance company in India requires substantial capital, long gestation periods and a long-term commitment in a highly competitive market dominated by established domestic players.
In life insurance, the top five companies account for nearly 82% of the market, while in general insurance, pricing controls in third-party motor insurance and thin margins in mass-market products continue to weigh on profitability.
“Strategic foreign partners may look to increase stakes in existing joint ventures or pursue selective acquisitions, but very few global insurers are likely to start 100% foreign-owned insurance companies from scratch,” said an industry executive. “India offers strong long-term potential, but scaling without a robust local distribution partner remains difficult.”
The amended rules, however, provide greater operational flexibility. Requirements mandating a majority of directors and key management personnel to be resident Indians have been eased, with only one among the managing director, CEO or chairman now required to be resident. Several governance and capital restrictions applicable to insurers with foreign shareholding above 49%—including stricter dividend retention norms—have also been withdrawn.
“The removal of mandatory profit retention before dividend repatriation is a significant step and aligns with the move to 100% FDI,” said CL Baradhwaj, company secretary.
For insurance intermediaries with majority foreign ownership, prior regulatory approvals for dividend repatriation and prescriptive board norms have been relaxed, with oversight largely left to sectoral regulators.
While the reforms enhance India’s long-term attractiveness as an insurance market, experts say meaningful foreign participation is more likely to come through higher stakes in existing ventures rather than a wave of new standalone foreign insurers.
