The recent exit of Allianz Group from its joint venture with Bajaj Finserv has once again highlighted the struggles of foreign insurers in India. Despite the Indian government’s efforts to liberalize foreign direct investment (FDI) norms in the insurance sector, the anticipated boom in penetration and growth remains lower than expected. But the problem does not lie where many assume it does. The bottleneck for insurance growth in India isn’t at the insurer level—it is at the "Insurance Broker Level" regulations. The time has come for the Insurance Regulatory and Development Authority of India (IRDAI) to recognize this and take bold steps toward deregulating the insurance broking space.
The Real Roadblock to Insurance Penetration
India’s insurance penetration remains significantly below global benchmarks. The conventional wisdom suggests that this is due to regulatory hurdles faced by insurance companies. However, the real issue lies in distribution. The key to unlocking India’s insurance potential is not just allowing foreign insurers easier entry but creating a robust and scalable insurance broking industry. Without efficient distribution channels, no amount of insurer-side deregulation will move the needle on penetration rates.
What India needs is deep, operational, feet-on-the-street presence combined with a seamless digital interface. This hybrid model is essential to push insurance deeper into the economy, benefiting both businesses and individuals. The ability to hedge tail risk at the right cost can drive economic security and better financial outcomes. But to achieve this, India needs large-scale insurance broking firms—something current regulations need to improve upon.
The Need for Scale: A Telecom Analogy
India’s telecom revolution lays a blueprint for insurance broking. The success of telecom in India was driven by scale—mobile SIMs became available at every street corner, ensuring access to every Indian. Insurance broking needs a similar transformation.
To truly democratize insurance, India needs insurance brokers with revenues north of $1 billion. However, a quick glance at the financials of the country’s leading insurance brokers reveals a stark reality: fragmented revenue streams and widely varying EBITDA margins, indicating a lack of scale. Without large-scale broking firms, the cost of access remains high, slowing down insurance penetration.
Three Regulatory Improvements That To Unleash Growth
FDI Restrictions: While India allows 100% FDI in insurance, insurance brokers face a cap at 49%. This limitation restricts the capital inflow needed to build large-scale operations. Raising this cap will provide much-needed investment to the sector and allow brokers to expand aggressively.
Equity Holding Limits: If there are multiple investors in an insurance broking firm, no single investor can hold more than 25% of the paid-up equity capital. This artificial restriction prevents consolidation and prevents brokers from achieving scale. A relaxation of this limit will allow strategic investors to support long-term growth.
Multiple Broker Ownership Rules: Investors cannot be promoters in more than one insurance broking firm. While this regulation was originally introduced to prevent conflicts of interest, it now acts as a major roadblock to scaling up broking businesses. A revision of this rule can drive industry growth without compromising governance.
India's Insurance Future: IRDAI's Moment to Take the Helm
As Indian incomes rise, the demand for insurance will surge, but supply-side bottlenecks will prevent the market from meeting this demand unless regulatory changes are made. The IRDAI has the opportunity to be the hero that transforms insurance penetration in India. By enabling scale and aggregation in the insurance broking sector, it can bring down costs, increase access, and ensure that every Indian has adequate insurance coverage.
Insurance in India should be as ubiquitous as mobile data. The path forward is clear: India doesn’t just need foreign insurers—it needs large-scale, well-capitalized insurance brokers. The IRDAI must act now to deregulate the insurance broking sector and pave the way for India’s next financial revolution. The time for incremental changes is over; what is needed is a bold regulatory shift that will allow insurance distribution to reach its full potential.
Disclaimer: In the article "Can IRDAI be the Knight in Shining Armor for India's Insurance Sector?" above - Any views, comments or communication (above or in the past) should not be construed to be investment advice by Alternative Growth (hereafter referred to as “AltG”) in any form whatsoever. AltG does not make an offer to sell or solicit to buy any securities.
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