The government is in discussion with the insurance regulator on relaxing minimum entry capital requirement for setting up an insurance venture, along with tax sops and lower solvency margin or extra capital requirements. At present a minimum investment of ₹100 crore is required to set up an insurance firm.

The move will help widen the reach of the insurance industry and pave the way for regional and mini insurers with limited product offerings, a government official said.

Different segments with varying requirements can be looked at, on the lines of banks where minimum capital required for setting up a small finance bank is ₹300 crore while it is ₹1,000 crore for universal banks, the official said.

"These are preliminary discussions. Any changes will require amendment in the Insurance Act, which will be taken up once a structure is finalised," the official said.

Earlier, a committee constituted by Insurance Regulatory and Development Authority of India (IRDAI), which had representation from the Economic Advisory Council to the Prime Minister (EAC-PM) and the finance ministry, suggested to allow mini or monoline insurance company on regional basis with lower capital of around ₹20 crore.

"Solvency margin requirements could be pegged at 100% and limited product suite (micro insurance, motor, health, term, unit linked) in order to boost insurance penetration and increase employment can be allowed," the report had suggested, adding that for these firms a minimum retention of 10% could be stipulated and balance portfolio can be ceded to direct insurers.

Solvency margin is the extra capital an insurance firm needs to hold to meet unforeseen exigencies.

Another recommendation was that these companies can be given tax shelter for the first 10 years of operations and allowed lower solvency capital of ₹50 crore with reinsurance covers provided from GIC. "The investment policies can also be guided towards 50% to be invested in special state bonds backed up by central bonds," said the official quoted above.

In April, IRDAI chairman Debasish Panda had said the regulator is thinking of allowing micro insurance players with ₹10 crore or ₹15 crore capital which can work in focus areas.

Insurance industry generated ₹9.2 lakh crore of premium in FY22, and the total assets under management had risen to ₹9.2 lakh crore. Insurance penetration (premiums as a percentage of gross domestic product) stood at 4.2% in FY21.

The penetration for life insurance in India is 3.2% and non-life insurance penetration is 1%.