The Union Cabinet on Wednesday gave its nod for amendments in the Insurance Act, paving way for 74 per cent foreign direct investment in the sector.
Currently, the permissible FDI limit in the life and general insurance stands at 49 per cent with ownership and management control with Indian.
According to sources, the Cabinet in its meeting has approval for amendments in the Insurance Act, 1938.
Finance Minister Nirmala Sitharaman in Budget 2021-22 said, "I propose to amend the Insurance Act, 1938 to increase the permissible FDI limit from 49 per cent to 74 per cent in insurance companies and allow foreign ownership and control with safeguards."
Under the new structure, the majority of directors on the board and key management persons would be resident Indians, with at least 50 per cent of directors being independent directors, and specified percentage of profits being retained as a general reserve.
She had also said that for investor protection, an investor charter would be introduced as a right of all financial investors across all financial products.
It was in 2015 when the government hiked the FDI cap in the insurance sector from 26 per cent to 49 per cent.
Increase in FDI will help improve life insurance penetration in the country. Life insurance premium as a percentage of GDP is 3.6 per cent in the country, way below the global average of 7.13 per cent, and in case of general insurance, it is even worse at 0.94 per cent of GDP, as against the world average of 2.88 per cent.
The government has earlier allowed 100 per cent foreign direct investment in insurance intermediaries.
Intermediary services include insurance brokers, reinsurance brokers, insurance consultants, corporate agents, third party administrators, surveyors and loss assessors.
