The Budget proposal of relaxing foreign investment limit in insurance intermediaries will strengthen distribution capabilities and increase international involvement, particularly from developed markets, Fitch Ratings said on Monday.

The Budget 2019-20 tabled in Parliament on July 5, permitted foreign companies to own up to 100 per cent in insurance intermediaries, including insurance agents, brokers, loss assessors and surveyors, from the 49 per cent, to attract more foreign direct investment into the industry.

"India's proposed removal of the foreign-ownership cap on insurance intermediaries is likely to increase competition, strengthen distribution capabilities to enhance insurance penetration and boost M&A in the medium to long term," Fitch Ratings said in a statement.

The proposed change is only applicable to insurance intermediaries while the cap on foreign ownership in insurance companies will remain at 49 per cent.

Still, the government has indicated that it may take further measures to open up the insurance market to foreign investors. This could include the relaxing of foreign ownership restrictions on insurance companies, Fitch said.

"We believe increased international involvement, particularly from developed markets, will contribute positively to the development of distribution networks, use of technology in distribution as well as bring in expertise in areas such as marketing and client-servicing," Fitch Ratings said.

There were 368 direct broker firms, 60 composite brokers and five reinsurance brokers as of June 2018, according to the Insurance Regulatory and Development Authority of India (IRDAI).