Insurance shares rallied on Monday after Finance Minister Nirmala Sitharaman increased the foreign direct investment limit for the insurance sector to 74 percent from 49 percent earlier.

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The share price of New India Assurance jumped 9 percent followed by GIC, which rose 5 percent. ICICI Lombard, SBI Life Insurance Company, and HDFC Life added around 2 percent each.

Foreign Direct Investment cap in the insurance sector was first raised to 49 percent from 26 percent in March 2016, but industry experts were of the view that it did not enthuse foreign investors as they could not get management control.

"The increase in FDI limits from 49 percent to 74 percent for the insurance sector is a welcome step and will help insurance companies to raise funds to ensure their solvency is maintained in line with growing business needs," said Manoj Purohit, Partner and Leader – Financial Services Tax at BDO India.

"This will also augment foreign inflows and help attract more foreign companies," he added.

In the 2019 budget speech, the government had amended the FDI policy to allow 100 percent foreign investment in insurance intermediaries such as insurance agents, web aggregators of insurance policies and brokers.

"A more liberal FDI policy will certainly attract higher amounts of foreign capital, which will aid in increasing insurance penetration in India. It will also provide an impetus to the insurance industry to scale up and build more digital and infrastructure capabilities in the post-pandemic era. Overall insurance penetration was 3.7% (premium as percentage of GDP), according to the latest Economic Survey 2020-21 on the Insurance sector," said Shailaja Lall, Partner, Shardul Amarchand Mangaldas & Co. on the insurance sector.

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