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September 12, 2022

India may slash minimum capital requirement to enter insurance market

The India government is considering changes to its insurance laws in a bid to increase insurance penetration in the country, news agency Press Trust of India (PTI) has reported.

As part of this effort, the Indian Finance Ministry is undertaking comprehensive review of the Insurance Act, 1938.

Some of the provisions being considered by the ministry include reducing the minimum capital requirement of Rs1bn ($12.5m) to launch an insurance business in the country.

The easing of capital standards could allow entry of companies focused on agriculture insurance, micro insurance, or insurance firms with regional approach, the PTI cited sources as saying.

Furthermore, the ministry is looking to increase the participation of more players in the sector. The process, which is expected to result in more job creation, is at an initial stage.

Insurance penetration in India – which is measured as the percentage of insurance premium to the country’s GDP – increased to 4.20% in 2020-21 from 3.76% in 2019-2020. This marks a growth of 11.70%, mainly due to the Covid-19 pandemic.

In 2021, the Indian government made changes to the Insurance Act to allow stake increase in insurers from 49% to 74% by the foreign firms.

In the same year, the parliament also passed the General Insurance Business (Nationalisation) Amendment Bill to reduce the central government’s stake in a specified insurer, thus paving the way for privatisation. The pare stake was reduced to less than 51% of the equity capital.

Currently, there are 24 life insurance companies and 31 non-life or general insurance firms in the Asian country, according to PTI.

Considering rapid economic expansion and regulatory push, India is expected to become the world’s sixth largest insurance market in the next ten years, according to a study.

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