Despite the government’s push to allow 100% foreign investments in the insurance sector through the Insurance Bill, 2025, experts caution that foreign capital may not flow in easily unless long-standing concerns around governance control, residency norms and regulatory hurdles are addressed.
The existing framework permits FDI of up to 74%, yet foreign investment remains largely underutilised. Of the 40 insurers with any FDI, 10 have foreign investments of less than 26%, 23 have FDI between 26% and 49%, and three have FDI between 49% and 74%, she said. Only four have reached the 74% cap.
A key deterrent has been the conditions attached to foreign ownership. “Some key conditions that were applicable for the 74% FDI limit included residency requirements for a majority of directors and key managerial personnel including MD/ CEO. So, even with a majority stake, foreign partners found they had limited actual control over governance and key decision-making processes,” said Narendra Ganpule, Partner and Insurance Industry Leader, Grant Thornton Bharat.
He added that there is still no clarity on whether these conditions will stay or be relaxed. Thus, regulatory unpredictability has also weighed on investor sentiments. Frequent changes and lack of clarity around products, distribution norms and operating models have often resulted in volatile profitability, making India’s insurance market less attractive for foreign insurers seeking stable, long-term returns.
Another major hurdle has been the lack of clarity on exit options for foreign investors. “Many foreign insurers have been hesitant to put in more capital without full control over strategy, technology and exit decisions. In certain joint ventures (JV), Indian promoters were unwilling to dilute further, valuations were rich, and legacy distribution arrangements made stake hikes commercially unattractive,” said Stella Joseph, Partner, Economic Laws Practice.
The proposed Insurance Bill, however, is expected to alter this dynamic. By allowing 100% foreign ownership, the government hopes to enable global insurers and financial investors to deploy long-term capital, bring in proprietary operating models and digital platforms, and bypass prolonged joint venture
negotiations that have historically delayed market entry.
However, the challenge lies as not all insurers see a compelling need to alter their existing ownership structures. An official from a leading insurance company, requesting anonymity, said the company does not feel the need to onboard additional foreign investors as it is comfortable with its current shareholding pattern.
As asserted by Finance Minister Nirmala Sitharaman, the opening up of the sector will intensify competition, regardless of whether individual firms seek more foreign capital. As global players gain the option to operate wholly-owned businesses, Indian insurers will need to sharpen their competitive edge. This will require investments in superior customer service, stronger digital capabilities and the adoption of global best practices to remain relevant in a more open and competitive insurance market.