President Pranab Mukherjee has signed the ordinances for a hike in foreign equity cap in the insurance industry from 26 percent to 49 percent.
As per the finance ministry, insurance penetration in India is very low when its is compared to the global average.This sector is in need of capital to expand and ensure better access to insurance services, especially in rural areas. It will improve insurance accessibility in rural areas in the country.
The ministry said in a statement that enhancement of the foreign equity cap from 26 percent to 49 percent with the safeguard of Indian ownership and control is a critical aspect of the ordinance, which will potentially enhance capital availability.
The reform will allow insurance companies to raise capital through new and innovative instruments, which would help capital intensive insurance industry to garner resources for business growth.
The ordinance will also empower IRDA (Insurance Regulatory and Development Authority) to regulate key aspects of insurance company’s operations like solvency, investments, expenses and commissions.
The ministry added that the ordinance will also substantially enhance penalty provisions to ensure compliance with new insurance laws by companies, which is essential to uphold the consumer interest.