Insurance Sector and FDI Limit

Source: BT

Context: The Union Budget 2025-26 proposed raising the FDI limit in the insurance sector from 74% to 100%, aiming to attract global investments and achieve the goal of ‘Insurance for All by 2047’.

About the Insurance Sector:

• What is the Insurance Sector? A critical component of the financial services industry, providing risk protection through life, health, and general insurance products. Plays a vital role in economic stability by offering financial security against unforeseen events.

• A critical component of the financial services industry, providing risk protection through life, health, and general insurance products.

• Plays a vital role in economic stability by offering financial security against unforeseen events.

• Global Status: India is the 10th largest insurance market globally and the 2nd largest among emerging markets. Expected to become the 6th largest market by 2033, surpassing countries like Germany and Canada. The market is projected to reach USD 222 billion by 2026.

• India is the 10th largest insurance market globally and the 2nd largest among emerging markets.

• Expected to become the 6th largest market by 2033, surpassing countries like Germany and Canada.

• The market is projected to reach USD 222 billion by 2026.

• Insurance Density: It is the ratio of premiums collected by insurance companies to the country’s population Increased from USD 11.1 in 2001 to USD 95 in 2023-24. Life Insurance Density: Stable at USD 70. Non-Life Insurance Density: Rose from USD 22 to USD 25.

• It is the ratio of premiums collected by insurance companies to the country’s population

• Increased from USD 11.1 in 2001 to USD 95 in 2023-24. Life Insurance Density: Stable at USD 70. Non-Life Insurance Density: Rose from USD 22 to USD 25.

• Life Insurance Density: Stable at USD 70.

• Non-Life Insurance Density: Rose from USD 22 to USD 25.

• Insurance Penetration: It is the percentage of a country’s insurance premiums to its gross domestic product (GDP). It’s a measure of how developed a country’s insurance sector is. Declined from 4% in 2022-23 to 3.7% in 2023-24. Life Insurance Penetration: Fell from 3% to 2.8%. General Insurance Penetration: Remained at 1%.

• It is the percentage of a country’s insurance premiums to its gross domestic product (GDP).

• It’s a measure of how developed a country’s insurance sector is.

• Declined from 4% in 2022-23 to 3.7% in 2023-24. Life Insurance Penetration: Fell from 3% to 2.8%. General Insurance Penetration: Remained at 1%.

• Life Insurance Penetration: Fell from 3% to 2.8%.

• General Insurance Penetration: Remained at 1%.

• LIC and Market Composition: Life Insurance Corporation (LIC): Holds 62.58% market share in new business premiums (FY23). Private Sector: Market share in general and health insurance rose from 48.03% in FY20 to 62.5% in FY23.

• Life Insurance Corporation (LIC): Holds 62.58% market share in new business premiums (FY23).

• Private Sector: Market share in general and health insurance rose from 48.03% in FY20 to 62.5% in FY23.

Key Reforms in Budget 2025-26:

1. 1.FDI Limit Increased to 100%:

o Aimed at attracting global investors and fostering innovation.

o Condition: Companies must invest the entire premium in India.

1. 1.GST Rationalization: Current GST rate of 18% on insurance premiums remains unchanged, but discussions are ongoing for potential reductions.

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