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A project report


A study on Impact of Foreign Direct Investment in insurance sector of


Submitted to : Submitted By:

Dr. Mohinder singh SACHIN

School of Business & Management Studies

Central University of Himachal Pradesh

(Established under Central Universities Act 2009)

I hereby SACHIN University Roll No CUHP17MBA57 declare that I have done the project report
on the topic, A study on Impact Of Foreign Direct Investment In insurance sector of India
which is submitted in partial fulfillment for the requirement of the degree of Master of Business
Administration. The Data presented in the report is pure. The assistance and help that received
during the course of this investigation has been duly acknowledged. It is further declared that it
has on original piece of work and it is worthy of the consideration for the degree of M.B.A.

Student Sign:



At this point, I would like to place a record my deep sincere sense of gratitude to those entire
esteemed person who’s direct or indirect co-operation and efforts have led to the complete of
this report. It is my proud on record my sincere thanks to my esteemed advisor DR. MOHINDER
SINGH for his continuous keen interest and providing me expert guidance; invaluable
suggestion as well as constructive criticism and inspiration from the inception to the
completion of this study, without it would not have been successfully completed.

I would also like to thank all the respondents who honestly answered the questions asked to

Thanking you



Sr. no Index page

Chapter 1


In India insurance industry consist of 68 insurance companies of which 24 are in the life
insurance business and 27 are non life insurance business out of which five private
sector insurance are registered to underwriter policies exclusively in health, travel
insurance and personal accident. And there are six public sector insurers. 11 are re
insurance including foreign reinsurer branch and Lloyd’s India. Apart from these, there is
solo re insurer namely, general insurance corporation of India. 68 insurers are currently
operated in India; out of which 8 are public sector and remaining 60 are in private
sector. Two specialized insurers, namely ECGC and AIC. Among the life insurance
company, life insurance corporation (LIC) is the sole public sector company. Star Health
& Allied Insurance Company Limited, Apollo Munich Health Insurance Company
Limited, SBI Health Insurance Company Limited, Bajaj Allianz General Insurance
Company Limited, Oriental Insurance Company Limited, National Insurance Company
Limited etc are the top health insurance companies in India. The most important role is
played by the insurance sector is to mobilize national saving and channelize them into
investment in different sector of economy. Foreign direct investment in insurance sector
is to increase the penetration of insurance in India. Because of the demand for
insurance is increase more and more insurance companies are now emerging in the
insurance sector of India.
The Indian insurance sector is used to be dominated by the
state owned general insurance and Life Insurance Corporation. But in 1999, the
insurance regulation development authority (IRDA) bill opened up to private and foreign
player, whose share in insurance sector has been rising. The govt. of India set up the
committee for reforms in the insurance sector in 1992. In its report release in early
1994.it recommended the opening up to sector to private sector participate. This was
done in 2000.since there is rapid growth in the insurance sector and the economy of the
India. The number of insurance sector increase 13 march to 18 march, 2008. As we
know India is the third most attractive FDI destination in the world. Its role in the nation

is the noteworthy; it is like a lifeline for the developing of the nation. In fact it also
provides a win-win situation to the host and the home country, because it provides lots
of benefits for both countries. The wave of easing and globalization sweepings across
insurance regulative and development authority (IRDA) is in favor of a rise in foreign
equity capital within the insurance joint ventures the insurance markets in the world. It
also gives great contribution for the growth of the GDP of the nation. The main role
compete by the insurance sector is to mobilize the savings and channelize them into
investment in numerous sector of the Indian economy. It will promote development in
the insurance sector by bringing more product and feature in the insurance sector. It
will provide additional source of finance in the insurance sector. FDI in the insurance
sector of the India is to increase the penetration of insurance in India. Foreign direct
investment in insurance sector would indirectly be the boon of the insurance sector of
India. With the sustainable revenue growth in the non life insurance market the
insurance sector has been fast developed. The inflow of the FDI in India is increasing,
and the India has tremendous potential of absorbing great flow of FDI in the upcoming
year. But higher stake holding by foreigners would mean higher foreign control on the
insurance company, thus runs a risk of having some decisions which are not in the best
interest of domestic consumers. There area unit already loads of players within the
insurance field which suggests that the competition already exists and services area unit
quite sensible. LIC is one in all the most effective corporations in insurance sector
providing one in all the most effective and fastest settlements to the purchasers. Not
much of competition is decide in this field. Non FDI funded domestic insurance
companies may have higher cost of capital and they would need to find ways of
competing with lower premium offered by FDI funded insurance companies.

 Definition of insurance:-
Insurance is a contract, represented by a policy, in which an individual or entity receives
financial protection or reimbursement against losses from an insurance company. The company
pools clients' risks to make payments more affordable for the insured.
Insurance policies are used to hedge against the risk of
financial losses, both big and small, that may result from damage to the insured or her
property, or from liability for damage or injury caused to a third party.

Nature of insurance:-
1. Sharing and transfer risk: - it is a financial instrument adopts to share the financial losses
that might occur to a person and the family of the person on happening of any event.
i.e. death in case of life insurance theft and motor accident in case of motor insurance
etc. the loose occur from these event in insured, are shared by all the insures in the
form of premium. Therefore risk is carried from one individual to group.

2. Highly cooperates instrument:-highly cooperate instrument is the key feature of any

instrument under which a group of person who agree to share the financial loss agreed
together. It is not possible to compensate all the losses from his capital. He is able to
pay a amount of loss by insuring a large no of person.

3. Risk valuation:- evaluation of risk is done before insuring to change the amount of share
of an insured, called as premium. It can be done through several method. Higher
insurance premium may be charged if there is higher risk is expected. In this way the
probability of loses is calculated at the time of insurance.

4. Amount of payment:- In case of non-life insurance the purpose is to make good the
financial loss suffered. So amount of payment depends upon the value of loss suffered
due to the specific insured risk only if insurance is there up to that amount. Whereas in

life insurance, the purpose is not to make good the financial loss suffered. The insurer
promises to pay a fixed sum on the happening of certain contingency. If the contingency
takes place, the payment falls due if the policy is valid and in force at the time of the

5. Large no of insured person:- small no of person can also be insurance but it will be
limited in smaller region or area. Because smaller the size of the group, higher the cost
of insurance to each person so for reduce the cost of insurance larger the no of person
covered. Large number of persons should be insured, to spread the loss immediately,
easily and economically.

6. Insurance is not a gambling:- Under gambling the person bids on something and exposes
himself to risk of losing whereas in the insurance person try to cover up his/her risk.
Insurance helps indirectly to increase the productivity of the community by reducing
worry and increasing initiative. The uncertainty of covering up of risk is changed into
certainty by insuring property and life because the insurer promises to pay a definite
sum at damage or death.

 Definition of FDI:-

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 A foreign direct investment (F.D.I) is an investment made by a company in one country,
into a company in another country. It refers to an investment made to acquire lasting or
long-term interest in company or entity based operating outside of the economy of the
investor. The investment is direct because the investor, which could be a foreign person,
company or group of entities, is seeking to control, manage, or have significant
influence over the foreign enterprise. FDI is a major source of external finance which
means that countries with limited amounts of capital can receive finance beyond
national borders from wealthier countries.

 History of FDI
 In the years after the Second World War global FDI was dominated by the United States,
as much of the world recovered from the destruction brought by the conflict. The
United States accounted for around three-quarters of recent FDI (including reinvested
profits) between 1945 and 1960. Since that point FDI has unfold to become a very
international development, no longer the exclusive preserve of OECD countries.
 FDI has fully grown in importance within the international economy with FDI stocks
currently constituting over twenty p.c of worldwide GDP. Foreign direct investment
(FDI) could be a live of foreign possession of productive assets, such as factories, mines
and land. Increasing foreign investment is used jointly live of growing economic
globalisation. Figure below shows internet inflows of foreign direct investment as a
proportion of gross domestic product (GDP). The largest flows of foreign investment
occur between the industrial countries (North America, Western Europe and Japan). But
flows to non-industrialized countries are increasing sharply

 Types of FDI

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Types of FDI

Direction Target Motive

Inward FDI Greenfield Resource

investment seeking
Outward FDI
Merger and Market
acquisition seeking

Horizontal Efficiency
FDI seeker

Vertical FDI Strategic


 Inward FDI:- taking control over domestic assets by foreign firm is termed as a inward
FDI. these included the tax break, interest loans, and the removal of restriction and
limitations. Long term gain is worth more than the short term loan.

 Outward FDI:- outward FDI is also known as direct investment abroad. In this domestic
firm overseas taking the control over the foreign assets is known as outward FDI.
Outward FDI is government backed insurance to cover the risk. Outward FDI is restricted
by when Tax disincentives or incentives on firms that invests outside of the home

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 Green field investment: - in this investment parent company start a new venture in a
foreign country by constructing new operational facilities. Greenfield are the primary
target of the host nation’s promotional effort. its merit is to create a new production
capacity and jobs, additional capital investment. And demerit is to loss of market share
of domestic firms.

 Merger and acquisition:- Cross-border acquisitions occur when the control of assets and
operations is transferred from a local to a foreign company, with that local company
becoming an affiliate of the foreign company. An acquisition occur when one company
take over the another company and establish itself as a new owner. A merger is a legal
consolidate between two parties into one entity.

 Horizontal FDI:- when firm invest in a similar product carried out by another country.
Thus the horizontal FDI is occur when the multinational business undertake the same
production in multiple countries is called horizontal FDI. E.g. coke , Pepsi, Samsung etc
are the example of horizontal FDI.

 Vertical FDI:- Vertical FDI takes place when the multinational fragments the production
process internationally ,locating each stage of production in the country where it can be
done at the least cost. A firm controls the different stages of value chain from sourcing
the raw Material for marketing and for manufacturing the product at the least cost.

 Resource seeking:- in this multinational invest in the countries with availability of the
natural resources. In order to gain privileged access to resources with regard to
competitors, MNE invest in countries with availability of natural resources. The major
factor for resource seeking FDI is availability of the resources, complimentary factor of
production, physical infrastructure.

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 Market seeking :- in this multinational invest in the countries with sizeable market and
growth opportunities in order to protect existing market. The main aim of market
seeking is either to penetrate the market or to maintaining the existing one.

 Efficiency seeking FDI: - A firm may strategically opt for efficiency-seeking FDI as a part
of regional or global product rationalization or to gain advantages of process
specialization. Efficiency seeking FDI provides the investing firm not only access to
markets but also economies of scope, geographical diversification and international
sourcing of inputs.

 Strategic assets FDI: - A tactical investment to prevent the gain of resource to a

E.g. Oil producers may not need the oil at present, but look to prevent their
Competitors from having it.

 Guidelines for FDI in Indian insurance sector

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 The Insurance Laws (Amendment) Act, 2015 defines Indian insurance company under
Section 2(7A) as under: “Indian insurance company” means any insurer, being a
company which is limited by shares,
 Which is formed and registered under the companies Act, 2013 as a public company or
is converted into such a company within one year of the commencement of Insurance
Laws (Amendment) Act, 2015
 In which the aggregate holdings of equity shares by foreign investors, including portfolio
investors, do not exceed forty nine per cent of the paid up equity capital of such Indian
insurance company, which is Indian owned and controlled, in such manner as may be
prescribed. Explanation – For the purpose of this sub clause, the expression “control”
shall include the right to appoint a majority of the directors or to control the
management or policy decisions including by virtue of their shareholding or
management rights or shareholders agreement or voting agreements
 Whose sole purpose is to carry on life insurance business or general insurance business
or reinsurance business or health insurance business? In exercise of the powers
conferred by clause (aaa) of subsection (2) of section 114 of the Insurance Act, 1938
read with clause (b) of subsection (7A) of section 2 of the Insurance Act, 1938 and
section 24 of the Insurance Regulatory and Development Authority Act, 1999 (41 of
1999), the Central Government has notified the Indian Insurance Companies (Foreign
Investment) Rules, 2015. These Rules mainly govern Indian control of Indian Insurance
Company, Indian ownership and issues relating to foreign investment. The definition of
“Indian ownership” has since been amended by Indian Insurance Companies (Foreign
Investment) Amendment Rules, 2015.
As per the above definition, control can be exercised by the virtue of
(a) Shareholding
(b) Management rights
(c) Shareholders agreements
(d) Voting agreements
(e) Any other manner as per applicable laws.

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In order to bring more clarity on the issue of compliance with the manner of “Indian
owned and controlled”, the Authority, in exercise of powers conferred under Section 14
(1) of the IRDA Act 1999, lays down the following guidelines on compliance of “Indian
owned and controlled”.

1. Applicability: These guidelines are applicable to Indian Insurance Companies

a) May come into existence after notification of the Act
b) May propose to hike their foreign investment from the existing level
c) Do not intend to increase their current foreign stake from the existing level.

2. Total foreign investment: Both direct and indirect holding in an Indian insurance
company shall not exceed 49 percent. Total foreign investment shall be
computed in accordance with Rule 2 (P) read with Regulation 11 of the IRDAI
(Registration of Indian Insurance Companies) Regulations, 2000.

3. Control: Control can be exercised by any one or more of the following criteria:
(a) Virtue of shareholding
(b) Management rights
(c) Shareholders agreements
(d) Voting agreements
(e) Any other manner as per the applicable laws.

4. Indian Control: The Indian insurance company shall ensure the following:
I. Majority of the directors excluding independent directors should be
nominated by the Indian promoter Indian investor
II. Appointment of key management person including Chief Executive
Officer / Managing Director /Principal officer should be through the
Board of Directors or by the Indian promoter and Indian investor

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However, Key Management Person excluding CEO may be nominated by
the foreign investor provided that the appointment of such Key
Management person is approved by the Board of Directors, where in
majority of the directors excluding independent directors are the
nominees of Indian promoter Indian investor.
III. The control over significant policies of the insurance company should be
exercised by the Board, provided that the constitution of the Board is
compliant with Para above.
IV. Where the Chairman of the Board is having a casting vote, such
Chairman should be nominated by the Indian promoter and Indian
V. Quorum: Quorum shall mean and include presence of majority of the
Indian directors irrespective of whether a foreign investor’s nominee is
present or not. The right of a Foreign Investor’s nominee to constitute
valid quorum for meetings is only a protective right and to that extent
would not amount to control within the meaning of Explanation to
Clause (7A) (b) as long as the presence of nominees of Indian Promoter
Investor are also mandatorily taken into account for the purposes of
quorum. Provided that provisions of Companies Act, 2013 shall come
into force in case of an adjournment.

5. Manner of ensuring compliance of “Indian Owned and Controlled”

I. An undertaking to this effect shall be filed by all Indian Insurance
Companies duly signed by the Chief Executive Officer and Chief
Compliance Officer confirming the compliance of “Indian owned
and controlled”.
II. Every undertaking shall be accompanied by
a) A certified copy of resolution passed by the Board of Directors
confirming the compliance of “Indian owned and controlled”

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b) Where applicable, certified copy of the agreement Joint venture
agreement where amendments have been carried out to these
agreements / joint ventures agreement to give effect the provisions
of “Indian owned and controlled”.

6. Insurance Intermediaries: These guidelines are also applicable to Insurance

Intermediaries as defined in the IRDA Act, 1999 such as Brokers, Third Party
Administrators, Surveyors and Loss Assessors etc. However, in case of an
insurance intermediary having more than 50 percent of its revenue from the
noninsurance activities, these guidelines shall not be applicable to such
insurance intermediaries.

7. Time Limit for Compliance:

Compliance by Existing Indian insurance companies: Existing Indian insurance
companies stated at Para 1 (b) and (c) above are required to comply with “Indian
Owned and controlled” guidelines within a period of three months from the date
of issue of these guidelines. However, the Authority may, on an application
made to it by an existing insurer, for valid reasons, grant a further period of
three months to comply, provided that the total time taken by an existing insurer
to comply with “Indian owned and controlled” stipulations does not extend
beyond six months.

 History of insurance sector in India

The British period:-

1818 saw the appearance of life assurance business in Asian nation with the institution of the
oriental life assurance company in Calcutta. This company however failed in 1834. 1870 saw the
enactment of British people insurance Act. This era, however, was dominated by foreign

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insurance Offices that did smart business in Asian nation. The Indian insurance firms act, 1912
was the first statutory measure to regulate life business. In 1928, the Asian nation insurance
firms act was enacted to enabled the govt to gather applied mathematics info concerning each
life and non-life business transacted in India by Indian and foreign insurers including provident
insurance societies.

In 1938, with a read to protective the interest of the insurance public, the
earlier Legislation was consolidated and amended by the insurance act, 1938 with
comprehensive Provisions for effective management over the activities of insurers.

The Nationalized Period:-

The insurance change act of 1950 abolished principal agencies. However, there have been an
oversized range of insurance corporations and also the level of competition was high. There
were also allegations of unfair trade practices. The government of India, therefore, decided to
nationalize insurance business. In nationalized era an ordinance passed on 19th January, 1956
nationalizing the life assurance sector and life assurance Corporation came into existence
within the same year. LIC absorbed 154 Indian, sixteen non-Indian insurers as additionally
seventy five provident societies-245 Indian and Foreign insurers in all. The LIC had monopoly
until the late 90s once the insurance sector was reopened to the personal sector. Due to new
liberalization, privatization and globalization, the Insurance sector was reopened to the private

General life insurance was nationalizing in the year of 1972 by

merging 172 general insurance companies. And with effect from 1st January 1973 General
Insurance Corporation (G.I.C. of India) and its four subsidiaries – namely New India Assurance
Co. Ltd; Oriental Insurance Company Co. Ltd; National Insurance Co. Ltd; and United India
Insurance Company Ltd., started operations in General Insurance Business. G.I.C (Re) is the
only Re-Insurance Indian Company.

Malhotra committee:- the malhotra committee was set up by government in 1993 under the
chairmanship of R.N malhotra former governor of RBI. To propose the recommendation for
initiation and implementation of reform in the Indian insurance sector. The committee
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submitted its report in 1994 where in it was recommended that the p[rivate be permitted to
enter into the insurance sector. It also recommended the participation of foreign companies by
allowing them to enter into Memorandum of Understanding by floating Indian companies,
preferably a joint venture with Indian partners.

IRDA:- later on IRDA (insurance regulation and development authority) was passed by
parliament in 1999. According to this act the insurance sector was open for both life insurance
as well as general insurance and foreign companies are allow to enter the insurance sector of
India with ownership of up to 26%.

Top 10 life insurance companies in INDIA

1. LIC Insurance Corporation Of India.

2. ICICI Prudential Life Insurance.

3. SBI Life Insurance.

4. HDFC Standard Life Insurance.

5. Max Life Insurance.

6. Bajaj Allianz Life Insurance.

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7. Birla Sun Life Insurance.

8. Reliance Nippon Life Insurance

9. PNB MetLife India Insurance

10. TATA AIA life insurance

Top 10 general insurance in INDIA

1. New India Assurance Company Limited.

2. National Insurance Company Limited.

3. L&T General Insurance Company Limited.

4. Bajaj Allianz General Insurance Company Limited.

5. United India Insurance Company Limited.

6. ICICI Lombard General Insurance Company Limited.

7. The Oriental Insurance Company Limited.

8. Max life Insurance Company.

9. IFFCO Tokio General Insurance Co. Ltd

10. Reliance general insurance company limited

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 FDI in insurance sector – historical overview
Before the year 1956, a huge number of insurance sector companies co-exist in India. And the
competition level is very high at that time. And also the allegation of unfair trade practices
against the insurance sector was also very high. Therefore the govt. decides to nationalize the
insurance business and the government passed the ordinance in January, 1956. And that
nationalize the insurance sector. In the same year Life insurance limited (LIC) came into
existence in the same year and absorbed 245 Indian and foreign insurance companies.
The LIC had created the monopoly since 1990when the
insurance sector was reopened for private participation. And foreign companies are also joined
the insurance companies through the joint venture with Indian companies. However the FDI
was permitted only 26%.
Since the privatization and liberalization the number of
insurance operating companies in India increased which further increased the competition
between the insurance companies. There has been a significant growth FDI inflow in the last 10
year for both private and public life insurance. The total FDI investments in India April-
December 2018 stood at US$ 33.49 billion. April-December 2018 indicates that the services
sector attracted the highest FDI equity inflow, India received the maximum FDI equity inflows
from Singapore (US$ 12.98 billion).even after an increasing participation through FDI, the
private insurance company shows the decline in the customer strength.
The real reason behinds the dismal performance. There is need to
know if it is caused by the low per capital income of Indians or it is due to the non awareness of
the good insurance product and their benefits. The main need is to reduce the cost of acquiring
new customers, improve the distribution network for effecting spread of awareness, and create
customer orientation. Speedy procedure for settlement of claims and developing a mechanism
for harmonious redressed of customers complaints.

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 Review of literature
 Bengal Chamber of commerce and KPMG (2013)
Addressed the present context of insurance. The external environment changed the
entire industry. Profitability, growth and risks were to be considered with respect to
shareholders view.
 FICCI and BCG (2013)
Discussed many issues with the industry. Mindset of the people towards insurer is an
important part. Distribution, cost and digitalization are some of the key areas to be
thought of.
 Jain (2011)
The life insurance industry needs support in the area of distribution, product diversity
and regulation. At the same time it was felt that outsourcing function should be from
the broader perspective rather than cost. The opening of life insurance companies also
witnessed major changes in the insurance products being offered by life insurance
companies and insurance covers opted for the customers.
 H. Sadhak (2009)
In his book, “Life Insurance in India, opportunities, challenges and strategic
perspective” reported that deregulation and liberalization of national economy had

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significant impact on institutional investor such as life insurance, pension fund and
investment institution.

 Kamlesh Gabhar (2006)

In his book, “Foreign Direct Investment in India” reported about Foreign Direct
Investment in India and its nature and scope of investment in Indian companies and
various sector through collaboration, merger, acquisition and joint venture of equity.
 Usha Bhat (2003)
In her book, “FDI Contemporary Issue” revealed that capital is stated as the engine of
economic growth. This statement has gained more importance in the recent time, in
which foreign capital played an important role in the early stage of industrialization of
most of the advanced countries.
 R.K. Uppal (2008)
In his book, “Financial Sector in India, Emerging Challenges” reviewed that with the
initiation of the deregulation of insurance sector, the insurance sector plays a vital role
in the process of the economic development of any economy. It has a positive
correlation with economic development

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 Benefits of Increases in Foreign Direct Investment Limit in Insurance
The cabinet committee on economic affairs headed by Prime Minister Narender Modi has
approved the limit of FDI in insurance sector to 49%from the existing 26%.
but now the insurance sector and the authority of India
(IRDA) is in the favor of allowing 100% FDI in insurance intermediaries in addition to insurance
broker the sources said In its response to the finance ministry with reference to increase in FDI
limit within the insurance non depository financial institution from this level of forty nine per
cent, the IRDAI said all major international insurance brokers such as Marsh, JLT, Willis and
Howden are already present in the country as the capital required for undertaking such activity
is very less. The increase in foreign direct investment (FDI) limit to 100 per cent will not result in
significant inflow of foreign capital. According to estimates, the total capital infusion by three
brokers after increasing the FDI limit is a mere Rs 4.78 crore. FDI in insurance sector is restricted
to 49 per cent. However, the government allows 100 per cent foreign investment for other
financial intermediaries.
Life insurance industry recorded a premium income of 458809.44
crore during 2017-18 as against 418476.62 crore in the previous financial year, registering
growth of 9.64 percent (14.04 percent growth in previous year). While private sector insurers
posted 19.15 percent growth (17.40 percent growth in previous year) in their premium Income.

a. Increase insurance penetration:-

The insurance penetration in the country is only around 3% of our gross domestic product,
which is far less as compare to Japan which has an insurance penetration of more than 10%.
With the population of more than 100 crore, India requires more insurance than any other

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country or nation. Increasing FDI limit will strength the existing companies and will also allow
other new player, thereby enabling more people to buy life cover.

b. Level playing field:-

With the rise in foreign direct investment to forty nine %, the insurance companies will get the
level playing field. So far the state owned Life Corporation of India controls around 70 % of the
insurance market.

c. Increased capital inflow:-

Most of the personal sector insurance corporations are creating goodly losses. The increased
FDI limit has brought some much needed relief to these as the inflow of more than 10,000 crore
is expected in the near term. This could go up to 40000 crore in the medium to long term,
depending on how things pan out

d. Job creation:-

With more cash coming back in, the insurance companies will be able to create more jobs to
meet their targets of venturing into under insured markets through improved infrastructure,
better operation and more manpower.

e. Favorable to the pension sector :-

If the pension bill is passed within the parliament then the foreign direct investment within the
Pension funds also will be raised to forty nine %. This is as a result of the pension fund
restrictive development Bill links the FDI limit within the pension sector to the insurance sector.

f. Consumer friendly:-

The end beneficiaries of this change are going to be common men. With more players in this
sector, there's certain to be demanding competition resulting in competitive quotes, improved
services and higher claim settlement quantitative relation

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 Advantage of India in insurance sector
Robust demand:-
Insurance industry in India is expected to reach USD 280billion by 2020, driven by increasing
awareness, innovative product and more distribution channels. Its expect India’s real GDP to
expand by 7.4% and 7.3% in fiscal year 2019-20., making the economy of India one of the
fastest growing in the world. During fiscal year 2018 total gross premiums for the life insurance
and non life insurance sector of India grew 11.5% to RS 6.1 LAKH CRORE bringing the 5 year
compound annual growth rate to 11%.
Attractive opportunity:-
Insurance is still low in India. Overall insurance penetration in India was 3.69% in 2017, provide
a huge undeserved market.
Public support:-
National health protection scheme under Ayushman bharat launched in 2018 to provide
coverage to more than 100 million vulnerable families.
Increasing investment:-
Insurance sector companies in India raised around Rs 434.3 billion through public issue in 2017.

Current status of insurance sector

Growth in life insurance premium

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30.1 30.1
26.3 27.3 27.2
17.7 18.6 17.6
13.4 13.1

FY 12 FY 13 FY 14 FY 15 FY 16 FY 17 FY 18 FY 19

New business premium is up to September 2018 and Renewal premium is up to June 2018
Over FY12–18, premium from new business of life insurance companies in India have increased at a
14.44 per cent CAGR to reach Rs 1.94 trillion (US$ 30.1 billion) and non-life insurance premiums (in Rs)
increased at a CAGR of 16.65 per cent. In FY19 (up to Jan 2019), premium from new life insurance
business increased 3.91 per cent year-on-year to Rs1.59 trillion (US$ 22.04 billion)


US$ 23.38 billion




24% 45%


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Out of total there is about 45% insurance of motors and 23% in health insurance. Here we can
see that in India health insurance is lower than the motor insurance that’s why we can say that
the health insurance in India is less.

Share of private sector in life insurance


FY 03 FY 19

There is 2% share in FY 03 in private sector but in FY 19 there is 31.8 % share of private sector in
life insurance, here we can see that there is rapid growth in the share of private sector in life

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FY 04 FY 19

In FY 04 there is only 15% share of private sector in non life insurance but there is growth in FY
19 about 50% in private sector in non life insurance.

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The major data shows the insurance penitartion and density reflects the level of development
of insurance sector in india. The penitration percentage in 2001 is 2.15% and continue increase
since 2009 4.60%. since then the penitration devel start decline and droped to a level of 2.72
since 2016. However it shows increse in 2017 2.76%. and the level of insurance density reached
the maximum density 55.7 US$ in 2010 from the level of 9.1 US$ in 2001. Since then it has
declining trend since 2013 41.0 US$. During the year 2017 the level of insurance density was
55.0 US$.

The penetration of non-life insurance sector in the country has gone up

from 0.56 in 2001 to 0.93 in 2017(0.77 in 2016). Its density has gone up from USD 2.4 in 2001 to
USD 18.0 in 2017(13.20 in 2016).

Factor affecting FDI

 Government policies:-policies like foreign investment, profits, taxation, foreign

collaboration, foreign exchange control, and tariffs etc. because of the govt. policies it
affect the FDI investment. The foreign investor only invests their capital when they
know that the country has stable political environment, for the safety of the moment of
capital. The stability of the political stability reflects in some aspects such as, the govt.
commitment in matter of investment capital ownership, policymaking, development

 Economic condition:-economic condition include the market potential, infrastructure,

size of the population and income level etc. it play a most important role in the decision

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making process of FDI all these factor effect the FDI investors, high population and high
population growth rate can be consider as factor encouraging FDI investor, low
population has low attraction for the FDI investor as comparison to the high population
Nation. The FDI investor seeks country with a high population growth, high
unemployment and low domestic investment, as labour cost tends to be cheaper.

 Political factor:- political factor which include the stability of the political parties, nature
of the political parties and relation with other parties. the political stability reflects in
some aspects such as, the govt. commitment in matter of investment capital ownership.
A country in which high political unrest and instability has more risk and uncertainty,
and that make less attractive for investors.

 Trade openness:- Trade openness is defined as the ratio of the sum of exports and
imports to total GDP at the current price. There is a negative relationship between the
import and the FDI inflow, if there is a barrier for imports by the host company then the
FDI inflow is increase. , if the market is more open, investors can easily approach the
host market. In this case, there may be a positive relation between trade openness and
FDI inflow.

 Wage rate:- there is a negative relationship between the FDI inflow and the wage rate
of the host country. If the wage rate is high in the host company then the inflow of the
FDI is less and if wage rate is low then the FDI inflow id high.

 Shortage of infrastructure:- The availability of power, steel, fuel, etc., is far below the
international standard and hence the government will not be in a position to provide
adequate infrastructure to FDIs. There is also heavy shortage of capital which is
hampering the investment in developmental activities.

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 Relaxation in the tax rate:- tax regulation is very important factor for encourage and
discourage the foreign investors. Big multinational companies invest on those
companies which has low tax rate. Government of India in order to attract the FDI has
extended incentives in the form of tax holiday, investment tax allowances etc.

 Skilled labour force:- a country with high educated and high skilled personnel are
available will attract the foreign investors Some industries required skilled and semi-
skilled labour. Many developing countries have large reserves of skilled and semi-skilled
workers that are available for employment at wages significantly lower than in
developed countries.

 Profitability:- profitability means when the return on investment is high. Foreign

investor are invest on those countries in which they have high return on investment.
High rate investment countries always attract the investors.

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Chapter 2

Industry analyses

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LIC Insurance Corporation of India

Market share of life insurance in market by the FY 2019

90 82.95
69.36 69.35 69.36

60 57.18

50 42.82
30.64 30.65 30.64

20 17.05


new business plan single permium first year premium renewable total premium

LIC private

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 Need of the study
 To study its influence in increasing employments.

 To study how FDI help in promoting international trade and to understand the reason

how the host country undergo development wit FDI.

 It is important to know the different source of capital as well as a source of developed

and advance technology that are involved in FDI.

 Currently, domestic insurance companies cover only two million people out of the total

population of 1.25 billion, whereas in developed nations like the US, three-fourths of the

total population is covered by one company or the other. Larger FDI would mean that

the rural and social sector obligations can be better met by insurance companies

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Objective of the study
 To study the effect of FDI in Indian insurance sector.

 To study the FDI pattern in insurance sector and govt. regulation involvement in them.

 To study the current trend in insurance sector, the prospectus and the challenges


 To find out benefit of increased FDI limit in insurance sector.

 To study the govt. regulation regarding the insurance sector in India.

 To analyze the benefit provided by the FDI investment in the Indian insurance sector.

 To study the drawback of the FDI investment in the insurance sector.

 To study the private and the public sector contribution in the insurance sector.

 To study the concept and the importance of FDI in global phenomenon.

 To study the current status of private sector and analyze the reason behind the public

sector insurance companies dominate the market despite 26% FDI being available to the

private sector.

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Research mythology
Research design
 This project provide a Plan of study, which include :-
 Statement of the problem.
 Definition of concept scope.
 Mythology.
 Sample design.
 Source of data.
 Tool and technique used for collecting data.

The study aim to understand the fundament analysis and its impact on Indian insurance
sector. It provide relevant information about the economy, industry and the different
companies in the field of Indian insurance sector.
The study entitled as “a study of impact of FDI IN INDIAN
INSURANCE SECTOR” to study the impact of the FDI and will find the problem in
insurance sector and performance of the insurance sector.

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Collection of data
 Secondary data
Secondary data refer to those data that has already been collected and analyze
by someone else. In other word secondary data is the information that already
Secondary data is collecting through:-
 Publish data
 journals
 Web source

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 In India has been identifies as one of the fastest growing insurance market around the
globe. The main reason for the high level investment from foreign country is that India
enter into a double taxation agreement with the Mauritius were protected from taxation in
India. Increase in foreign direct investment is very important move for the future of Indian
Life Insurance Sector, since the insurance sector need huge amount of capital investment
which can be done effectively only through increase in foreign direct investment and it
enhance overall performance of insurance sector in India. With the help of increasing in FDI
investment in India will increase the penetration and density of insurance sector. Along
with that innovative insurance product and services, better use of technology, increase in
employment and competition etc. are by-product of increase in F.D.I. in insurance Sector.
The FDI has not a reverse impact on the working of private life insurance companies in
India, but it assists for infrastructure development, assists in better facilities and techniques
for sales person, broker etc. insurance business need more care as comparison to other
business in India.

The insurance penetration in India at 3.69% is one of

the lowest across the world. And it’s just grown by 1% in last one and half decade. The new
business premium for life insurance has increased from Rs. 9,707.4 crore in FY 2000-01 to
Rs. 19.41 trillion in FY 2017-18. And 75% of the population has no insurance policies. The
insurance sector face more challenges due to change in economy and employment. There
is many player in the world have planned to enter into Indian insurance market. Increased
role of foreign capital may lead to the possibility of exposing the economy to the
vulnerabilities of the global market by way of likely inheritance of unsound balance sheets
and financial health of the foreign partners through joint ventures and subsidiary routes,
flight of capital outside the country and also endangering the interest of the policy holders.
The present global economic scenario, any further hike in FDI at this juncture may not be in
the interest of the Indian insurance industry, whereby the common man too would not
stand to gain through insurance, particularly as a means of social security.

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 References
1. Malhotra, B., “Foreign Direct Investment: Impact Web Links on Indian Economy”, Global
Journal of Business
2. http://www.tradingeconomics.com/india/currentManagement and Information
Technology, Vol. 4, account-to-gdp No.1, pp. 17-23, (2014).
3. https://www.ibef.org/industry/insurance-presentation
4. https://www.ibef.org/economy/foreign-direct-investment.aspx
5. https://rmoneyinsurance.com/blogs/general-insurance/brief-history-insurance-india/
6. https://www.affairscloud.com/history-insurance-india/
7. https://www.irdai.gov.in/ADMINCMS/cms/frmGeneral_NoYearList.aspx?DF=AR&mid=1
8. https://www.irdai.gov.in/ADMINCMS/cms/Uploadedfiles/english_hindi_annual%20repo
9. Gopalakrishnan, S., “India Must Attract more FDI”, The Times of India, Delhi
10. https://cloudfront.ualberta.ca/-/media/china/media-gallery/research/research-

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