Foreign insurers find life in India tough despite easier FDI norms

Mumbai: Foreign insurers have steadily retreated from India despite regulatory reforms that eased ownership restrictions as challenges of scaling in the market without strong local partnerships remain a problem. The latest departure was Germany's Allianz Group, which ended its two-decade-long joint venture with Bajaj Finserv amid disputes over stake increases and management control. New York Life, ING, IAG and Old Mutual have exited India over the past decade and a half.

In contrast, a few global players such as Tokio Marine, were the last major foreign entrant in the life insurance sector in 2011, Zurich Insurance expanded its presence last year by acquiring a 70% stake in Kotak General Insurance. Other insurers who started operations over last decade are mostly PE backed. A proposal to raise the foreign direct investment limit to 100% has reignited talks about foreign ownership, but experts say that this is unlikely to spur fresh interest.

"Whoever was excited about India has already entered the market," said a senior industry executive familiar with foreign insurers' expansion strategies. Even after the FDI cap was raised from 49% to 74% in 2021, most foreign investors remain capped at 49% or lower, largely due to their reliance on domestic partners for distribution and market access.

"There is no sudden flood of capital just because the FDI limit increases," said an industry veteran. "Insurance in India isn't an easy business - scaling requires deep distribution networks, operational expertise, and strong local relationships. That doesn't come from just hiring people; you need a real on-the-ground presence." Some potential entrants, including insurers from Japan and the US, have expressed interest, but remain reluctant to enter without a strong domestic partner.

"They're not just looking for a financial partner - they want someone who can actively participate in the business," said Ashvin Parekh of Ashvin Parekh Advisory, who advises insurers on market entry.

General insurance presents an even steeper challenge. While life insurance risks are more predictable, industry insiders point out that general insurers operate with average loss ratios exceeding 100%, meaning premium collections barely cover claims and expenses.

"In the first five years, it's brutal," said Parekh. "You're essentially relying on investment income while battling adverse risk selection."

On reinsurance front, some foreign reinsurers may opt to participate in Lloyd's of London's syndicates rather than establishing a standalone presence in India. "It's easier to underwrite risks via global markets than to navigate India's complex regulatory and operational landscape," Parekh added.