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The Union Cabinet has approved a proposal to amend the Insurance Act, 1938.
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It will increase the foreign direct investment (FDI) limit in the insurance sector to 74% from 49%.
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Conditions: The increase in the foreign direct investment(FDI) limit in the insurance sector comes with safeguards such as:
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The majority of directors on the Board and key management persons in health and general insurance companies would be resident Indians.
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At least 50% of directors will be independent directors.
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The government will also specify a particular percentage of profits to be retained as a general reserve.
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Significance of this move: Raising the foreign investment limit(FDI) in the insurance sector is expected to provide the following benefits:
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Improve capital availability in the insurance sector.
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Help in developing the insurance industry as a channel for generating durable funds for the creation of long-term assets.
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An increase in competition in the sector will help in lowering the cost of insurance products.
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It would benefit small insurance players or the ones where the sponsors don’t have the ability to infuse more capital.
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Improve Insurance Penetration in the country.
About Insurance Penetration:
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Insurance penetration is used as an indicator of insurance sector development within a country. It is calculated as the ratio of total insurance premiums to the GDP in a given year.
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Currently, Insurance penetration stands at just 3.71% of the GDP in the country.