Why India’s 100 pc FDI push in insurance finds no takers even after 7 months

Seven months after Union Finance Minister Nirmala Sitharaman announced in the Union Budget that foreign direct investment (FDI) limits in insurance would rise from 74 per cent to 100 per cent, the promise of fresh global money remains unfulfilled.

Instead of new foreign entrants queuing up, some of the world’s biggest insurance companies have been scaling back. The shift has left policymakers with an uncomfortable question: if foreign partners were already reluctant to deepen exposure at 74 per cent, will lifting the ceiling to 100 per cent really change the picture?

Broader plan

The government has framed the liberalisation as a part of its broader plan to attract capital and modernise India’s financial services sector. The proposal requires amendments to the Insurance Act, with the Insurance Regulatory and Development Authority of India (IRDAI) tasked with drafting the enabling rules once Parliament clears the Bill.

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In her Budget speech, Sitharaman said the higher cap would be available for companies that reinvest all premiums domestically, and pledged to review the conditionalities that have long accompanied foreign ownership. “The enhanced limit will be available for those companies which invest the entire premium in India,” she said, stressing that foreign participation would help deepen penetration in an underserved market.

In March 2025, Germany’s Allianz sold its 26 per cent stakes in Bajaj Allianz Life and Bajaj Allianz General Insurance to Bajaj Finserv for €2.6 billion (Rs 24,180 crore).

India’s insurance penetration stood at just 3.8 per cent of GDP in FY24, according to IRDAI data, well below the global average of 6-7 per cent. Insurance density, or premium per capita, has stagnated in life and grown only slowly in non-life. Against this backdrop, higher foreign ownership was seen as a way to bring in capital, technology, and product innovation. But recent deals suggest a very different trajectory.

Exits overshadow inflows

In March 2025, Germany’s Allianz sold its 26 per cent stake in Bajaj Allianz Life and Bajaj Allianz General Insurance to Bajaj Finserv for €2.6 billion (Rs 24,180 crore). The deal ended a 24-year joint venture and gave Bajaj complete ownership of the two insurers. Allianz described India as “a growth market” and insisted it would redeploy proceeds into new opportunities, but its retreat was widely read as a setback to the government’s liberalisation narrative.

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Bajaj Finserv chairman Sanjiv Bajaj cast the buyout in positive terms. He said the long partnership with Allianz had delivered “industry-best solvency margins” and built a premium base of over Rs 40,000 crore. “With full ownership, we can drive further growth, deepen synergies and sharpen long-term strategy,” Bajaj added.

Just months earlier, Dutch insurer Aegon exited India altogether, selling its 56 per cent stake in Aegon Life to Bandhan Financial Holdings. Aegon described the divestment as part of a global restructuring strategy but stressed that the transition would safeguard the “legacy of innovation and customer-centric approaches” it had built in India.

“We are confident that Bandhan will take forward Aegon Life’s vision and values while strengthening its reach and impact,” the company said in a statement.

The first wave of liberalisation in 2015, which raised the FDI cap from 26 per cent to 49 per cent, triggered a flurry of foreign insurers stepping up their stakes.

Bandhan has since rebranded the business and positioned insurance as a new growth vertical.

For Indian promoters, the exits have been framed as opportunities. For observers of foreign participation in India, however, the message was mixed: two large multinationals walked away just as the government was throwing open the door to 100 per cent FDI.

1st and 2nd waves of hikes

The first wave of liberalisation in 2015, which raised the FDI cap from 26 per cent to 49 per cent, triggered a flurry of foreign insurers stepping up their stakes. AXA increased its holdings in Bharti AXA Life and General Insurance to 49 per cent in December 2015, followed by AIA raising its stake in Tata AIA Life to 49 per cent in April 2016.

Aviva plc also moved up to 49 per cent in its Indian life arm by May 2016, while Tokio Marine hiked stakes across JVs like Edelweiss Tokio and IFFCO-Tokio during 2015-2017. Nippon Life deepened its exposure in Reliance’s insurance ventures around the same time, and Liberty Mutual raised its interest in Liberty Videocon General Insurance to 49 per cent in 2016. In all, at least six well-documented foreign partners seized the opportunity, underscoring the enthusiasm the first liberalisation wave unlocked.

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The second wave in 2021, when the ceiling was lifted from 49 per cent to 74 per cent, saw a more muted response. Only a handful of foreign parents raised their holdings: Generali pushed its stake in Future Generali India Insurance to roughly 74 per cent in 2022, Ageas upped its interest in Ageas Federal Life to 74 per cent the same year, and Aviva bought out part of Dabur Invest Corp to also reach 74 per cent in its life arm.

-Outside of these three, most foreign partners either stayed put or chose fresh entry structures, such as Zurich’s 70 per cent acquisition of Kotak General in 2024. The contrast between the two phases highlights how the initial 49 per cent liberalisation spurred far broader stake hikes than the later 74 per cent cap, reflecting both partner dynamics and deeper caution about India’s insurance economics.

While the FDI debate has dominated headlines, IRDAI has been pushing its own reform agenda under the so-called “Bima Trinity”.

“The second wave saw much less participation than the first wave. And currently there’s been no stake increase at 100 per cent FDI. But we should refrain from coming to any negative conclusions because of it as it’s just the government signalling to the broader world its openness,” said a chief executive of a general insurer in India.

'Bima Trinity' vision

While the FDI debate has dominated headlines, IRDAI has been pushing its own reform agenda under the so-called “Bima Trinity”. This package includes – Bima Sugam, a unified digital marketplace for policy sales, servicing, and claims, Bima Vistaar, a bundled product covering life, accident, health, and property risks and Bima Vahak, a women-led local distribution model designed to strengthen trust and reach in rural areas.

IRDAI former chairman Debasish Panda has cast the Trinity as central to the regulator’s mission of achieving “Insurance for All by 2047”.

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Speaking at a recent Bima Manthan meeting, he said: “Bima Sugam will be the tech arm of insurance agents and distributors, making them more productive and efficient. Bima Vahak will create last-mile trust in rural India, while Bima Vistaar ensures that every household has a basic safety net.”

The Trinity reflects IRDAI’s recognition that India’s problem is not just capital, but distribution, affordability, and trust. While the Centre’s FDI push is aimed at unlocking global money, IRDAI’s plan is squarely focused on domestic expansion.

Why the hesitation?

Industry insiders argue that foreign insurers’ reluctance has less to do with caps and more to do with structural frictions. Even at 74 per cent ownership, foreign partners complained of limited control over governance, with rules requiring Indian residency for key management roles and constraints on board appointments. Valuation disputes with Indian partners were common, particularly when promoters resisted relinquishing control.

Even at 74 per cent ownership, foreign partners complained of limited control over governance, with rules requiring Indian residency for key management roles and constraints on board appointments.

Then there are the economics. Insurance is capital-intensive and subject to heavy regulatory oversight. Pricing is tightly controlled in products like motor insurance, margins are slim, and consumer awareness remains patchy, especially outside metros. IRDAI’s own data shows that profitability is volatile across the sector, with solvency margins often eating into growth capital.

“Unless governance restrictions and profitability concerns are addressed, raising the cap to 100 per cent will remain symbolic,” said a senior consultant with an international law firm that advises insurers.

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An executive at a global insurance company, who did not want to be named, was more blunt: “If we weren’t investing more at 74 per cent, why would 100 per cent suddenly change the equation?”

Consolidation over expansion

The bigger trend is Indian consolidation. Domestic groups like Bajaj Finserv and Bandhan are seizing control of their joint ventures. IRDAI has also been urging more Indian conglomerates to enter the sector and encouraging insurers to list on Indian exchanges to broaden their capital base. Policymakers hope this will create a deeper and more resilient domestic market, even if foreign capital is slow to arrive.

Some analysts caution against reading exits purely as negative signals. Allianz and Aegon, they argue, are reshaping global portfolios, and their Indian divestments may reflect broader corporate strategies rather than outright pessimism about the market.

But the optics are hard to ignore: just as the government signals unprecedented openness to foreign capital, some of the most prominent foreign names are walking away.

At a crossroads

The government and IRDAI insist that the combination of 100 per cent FDI and the Bima Trinity lays the foundation for faster growth and wider coverage. Yet until fresh foreign investors step in — or existing ones expand their stakes — the liberalisation remains more promise than practice.

For now, India’s insurance industry sits at a crossroads. The policy space has never looked more open, but the investment flow remains hesitant. Industry insiders say that whether India can bridge this gap will depend less on ownership ceilings and more on whether it can deliver the fundamentals foreign insurers value: returns, governance clarity, and regulatory stability.

Until then, expansion may continue to be driven not by foreign inflows, but by domestic promoters consolidating control.