The Indian Insurance Companies (Foreign Investment) Rules, 2015

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Ministry of Finance under notification of 19 February 2015 made Indian Insurance Companies (Foreign Investment) Rules, 2015 while exercise of powers conferred by clause (aaa) of Sub-section (2) of Section 114 of Insurance Act, 1938 which is read with Section 2(7A)(b) of Insurance act, 1938 and Section 24 of Insurance Regulatory and Development Authority Act, 1999. After consulting with relevant departments and organisations these rules have been made by the Central Government. These rules are brought about with respect to treatment of foreign investment in Indian Insurance Companies under FDI policy of Government of India.

These rules will come into force when stated in the Official Gazette of India by the government and a copy of the rules is placed in Department of Financial Services website. Section 2 of the Rules state about definitions of words like Act, Authority, Control, equity share capital, FIPB, Foreign Direct Investment, foreign investors, foreign portfolio investment, Indian Insurance company, Indian company, Indian control of Indian insurance company, Indian ownership, non-resident entity, public financial institution, Resident Indian citizen, total foreign investment etc. Any other words that are used in these rules which are not defined here but in Act and Rules and regulation made in other act will have the same meaning.

Quantum of Foreign Direct Investment has been explained here under the Rules. Foreign direct investment (FDI) limit in Indian Insurance Companies will not exceed 49% of the paid up equity capital of such Indian insurance company. All Indian Insurance company ownership and control will be at all times in the hand of the Indian entities as stated under clauses (k) and (l) of Rule 2.

26% of total paid up equity of Indian Insurance Company by the Foreign Direct Investment are allowed on automatic route.  FIPB approval is required subject to compliance under the provision of this Act to all the foreign direct investment proposal which are above 26% and up to cap of 49%.

Foreign portfolio investments in an Indian Insurance Company is governed by sub-regulations (2) (2A) (3) and (8) of Regulations 5 of FEMA Regulations, 2000 and Securities Exchange Board of India (Foreign Portfolio Investors) Regulations.

Reserve Bank of India under FEMA will specify the guidelines for any increase in foreign investment of an Indian Insurance Company. All the Insurance Brokers, Third Party Administrators, Surveyors and Loss Assessors and other insurance intermediaries appointed under Insurance Regulatory and Development Authority Act, 1999 will have the same terms and the cap of 49% shall apply to them too but if a Bank whose business is outside insurance area will be allowed by authority to function as insurance intermediary and investment cap will apply to them and their primary business should remain above 50% of their total revenue in a financial year.

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Any other matters which relate to Foreign Investments in an Indian Insurance Company which are not stated here will fall within the regulatory ambit of authority and be as per rules framed here under.

Main benefits of higher foreign partners can result into innovative products, better services and technology and improved customer service standards. It will also help to see more competitive and innovative products by use of technology in the Indian market.

This new rules levies harsher penalties which range from Rupees 1 Crore to Rupees 25 crores, for violations and mis-selling and misrepresentation under the law which acts as deterrent against rampant mis-selling or duping people.

This new law has brought in easier way of nomination process and when payment is made to the nominee Insurance Company is discharged of its legal liabilities.

“The Insurance Bill says that insurers will be held responsible for mis-selling by agents. We have asked for clarification on this matter. It remains to be seen whether penalties will be levied even after the insurer has taken appropriate action against the erring distributors,” said Arijit Basu, managing director and CEO, SBI Life. “It works in favour of honest policy holders as their claim settlement will become smoother,” said Basu.

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by Sushma Javare.