Allianz sold 23 per cent of its 26 per cent stake in two joint ventures in India — Bajaj General Insurance and Bajaj Life Insurance — to the promoter Bajaj Group, ending a near 25-year partnership with one of India’s biggest industrial groups, citing its limited ability to operate in the country’s insurance sector due to its minority position in the joint ventures.

For a bigger play in India’s insurance market, the German insurance group had last year entered into a binding agreement with Mukesh Ambani-backed Jio Financial Services (JFS) to form a 50:50 domestic reinsurance joint venture (JV). It also plans to set up equally owned JVs for both general and life insurance businesses in India, which is the 10th largest insurance market in the world by nominal premium volume.

High ownership stakes in JVs essentially allow a partner to operate with greater flexibility, deepen its strategic involvement, and consolidate control — vital aspects for it to remain invested in a competitive market for the long term and bring in the required funds to grow the business. For a foreign player, this is even more crucial.

In this backdrop, the government’s decision to open the insurance sector to 100 per cent foreign direct investment (FDI) is timely, attracting foreign companies with clearer FDI rules and a safer investment climate. The upcoming risk-based capital framework underlines the need to attract more investment. Domestic promoters have often struggled to provide adequate funding to achieve sustained growth.

In December last year, the Parliament approved the passing of the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025, to raise the FDI limit in the insurance sector to 100 per cent from 74 per cent.

The limit had been raised to 74 per cent from 49 per cent in 2021, as the government aimed to bring more capital and global risk expertise into the domestic market. The higher limit initially spurred new JVs, especially in the non-life insurance space. Foreign JV partners introduced global best practices in underwriting, technology and customer service. However, the 74 per cent cap remained “underutilised”, according to Swiss Re Institute.

Regulatory data indicates that only four life insurers were at 74 per cent foreign shareholding, and no general or standalone health insurer reached that level.

“Insurance is a long-term investment... People commit to invest in the sector for a very long term. And, most likely, foreign players will be attracted by the 100 per cent ownership story. India is expected to be one of the fastest growing insurance markets. So, 100 per cent FDI will likely lead to capital augmentation to support this growth story,” Amitabha Ray, Market Head, Swiss Re India, told businessline.

“And then it will bring all the global best practices, technology and new products into the country, providing further growth momentum to the insurance sector. Overall, this will be a very positive boost to the sector,” Ray pointed out.

With 100 per cent FDI, some global insurers may consider entering India independently, rather than partnering with a local player, observed Neha Parikh, Vice President and Sector Head-Financial Sector Ratings, ICRA Ltd.

“In general and health insurance, this could strengthen competition, sharpen pricing, and accelerate digital outreach — particularly in rural and semi-urban markets, where penetration remains low,” Parikh said.

However, the life insurance space poses a different challenge. The segment is still driven heavily by bancassurance, and banca-owned insurers dominate distribution.

High protection gap

“Given the capital-intensive nature of life insurance, the incremental capital requirements would be high for increasing the penetration. However, the key aspect to be seen is whether global insurers can realistically build or access strong distribution networks without a local partner — something that remains uncertain despite the flexibility 100 per cent FDI provides,” Parikh highlighted.

In 2024-25, India’s insurance penetration remained unchanged at 3.7 per cent. For the life insurance industry it declined from 2.8 per cent in the previous year to 2.7 per cent during 2024-25. What is especially worrisome is that the country has the highest protection gap.

“The Indian private life insurance industry is now 25 years old. Over the years, there have been changes at various levels that have contributed to enhancing the accessibility and affordability of this critical financial product. Among the most recent significant changes is the government’s decision to allow up to 100 per cent FDI in the industry. It bodes well from the industry point of view, as well as promises to give further impetus to the regulator’s vision of ‘Insurance for all by 2047’,” said Vibha Padalkar, MD and CEO, HDFC Life Insurance.

“A large section of the Indian population is currently uninsured or underinsured. Capital and expertise of global participants, combined with the strengths of the Indian companies, would play a big role in taking life insurance to a larger section of the population and bridging the protection gap,” Padalkar said.

Notably, the penetration by the non-life insurance industry remained 1 per cent during 2024-25, as in 2023-24. Among the various segments under non-life insurance, the health insurance business is the largest with a contribution of 41.42 per cent of the total premium in 2024-25, compared with 40.29 per cent in 2023-24.

“Insurance penetration in India remains significantly below global averages, especially in health insurance. Access to long-term foreign capital can act as a catalyst for faster growth in the SAHI (standalone health insurance companies) segment by enabling deeper market expansion and sharper customer engagement.

“With greater financial flexibility, SAHIs can invest beyond metros in tier-2, -3, and rural markets, strengthen agency and digital distribution, and build awareness around the importance of health insurance,” said Ankur Kharbanda, Executive Director and Chief Business officer, Niva Bupa Health Insurance.

Additionally, increased capital allows insurers to focus on preventive care, wellness ecosystems, and simplified products that are easier to understand and buy — key drivers of first-time adoption.

According to Kharbanda, clearer and more liberal FDI norms create a predictable and stable investment environment, which is essential for long-term commitments in a sector like insurance. For existing foreign partners, the ability to raise the ownership stake allows them to deepen their strategic involvement, bring in global best practices, and support long-term innovation. For the industry as a whole, this could lead to greater competition, improved governance standards, and a stronger focus on customer outcomes.

Consolidation

Of the 60 insurers and reinsurers (24 life, 34 non-life, and two reinsurers), six smaller insurers are already operating at the 70–74 per cent foreign ownership threshold, according to Sanjay Agarwal, Senior Director, CareEdge Ratings.

“For these firms, the higher FDI limit offers additional room for capital infusion by existing foreign promoters without changing their structure, supporting solvency as capital requirements grow. For about 11 mid-sized insurers with a 49 per cent foreign stake, the change permits gradual increases in ownership and will broaden the capital pool. The reform is likely to ease capital constraints for certain players and aid consolidation,” Agarwal emphasised.

FDI is expected to drive growth and increase insurance penetration with more competition, advanced technology, global expertise, and greater product innovation. In the general insurance segment, new products in the surety capacity, cyber insurance and liability insurance space are expected to be rolled out as new risks come into place in the growing economy.

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Published on January 19, 2026