The Union Cabinet’s approval of the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025 marks the most ambitious attempt in decades to recalibrate India’s insurance framework. By amending the Insurance Act, 1938, the LIC Act, 1956 and the IRDAI Act, 1999, the government seeks to modernise regulation, deepen insurance penetration and align the sector with its long-term goal of “Insurance for All by 2047”. Yet, the Bill reflects a careful — and contested — balancing act between reform momentum and regulatory caution.
What the Government Is Trying to Achieve
At its core, the Bill signals a renewed push to globalise and professionalise India’s insurance sector. Insurance penetration in India remains low relative to global averages, despite steady growth. Policymakers view regulatory liberalisation and capital inflows as essential to expanding coverage, improving service quality and strengthening risk management.
The Bill also reflects a broader financial sector reform agenda that emphasises ease of doing business, stronger regulators and reduced state micromanagement.
The Big Headline Reform: 100% FDI in Insurance
The most consequential change is the proposal to raise the foreign direct investment limit in insurance companies from 74% to 100%. This move is expected to:
- Attract long-term foreign capital into a capital-intensive sector
- Enable technology transfer and global best practices
- Increase competition and product innovation
- Support the expansion of insurance into underserved segments
With only about 70 insurers in India compared to nearly 10,000 globally, even limited foreign entry could translate into significant capital inflows. Strategically, the reform signals confidence in India’s regulatory maturity and openness to global integration.
Boosting Reinsurance Capacity
Another important provision lowers the Net Owned Funds requirement for foreign reinsurers from ₹5,000 crore to ₹1,000 crore. Reinsurance is critical for spreading risk and enhancing the stability of the insurance system, especially in the face of climate risks and large-scale disasters.
By easing entry norms, the Bill aims to diversify a segment currently dominated by public-sector GIC Re and build deeper domestic reinsurance capacity.
Strengthening the Regulator: More Teeth for IRDAI
The Bill significantly enhances the powers of the Insurance Regulatory and Development Authority of India (IRDAI). Key changes include:
- Authority to disgorge wrongful gains, similar to SEBI’s powers
- Clearer criteria for penalties to improve consistency and transparency
- A formal SOP for regulation-making
- One-time registration for intermediaries to reduce compliance friction
These measures seek to strike a balance between stronger consumer protection and a lighter regulatory burden for compliant firms.
Greater Operational Freedom for LIC
For the Life Insurance Corporation of India, the amendments offer greater autonomy. LIC will be allowed to open new zonal offices without prior government approval and restructure overseas operations in line with host-country laws.
This reform aims to modernise LIC’s governance and make it more agile in an increasingly competitive and globalised insurance market.
The Notable Omissions: What the Bill Leaves Out
Despite its breadth, the Bill stops short of several structural reforms long demanded by the industry.
One major omission is the absence of composite licences. Current law rigidly separates life and non-life insurance. Allowing composite licences would have enabled insurers to offer integrated products — combining life, health and general insurance — in line with global practice. Its exclusion preserves legacy silos and limits product innovation.
Another missed opportunity is the decision not to lower minimum capital requirements for new insurers. High entry thresholds continue to deter niche, regional and specialised players who could address gaps in rural, informal and low-income markets.
Deferred Reforms and Regulatory Caution
Proposals included in earlier drafts — such as allowing insurers to distribute other financial products, enabling agents to sell policies of multiple insurers, easing investment norms, and permitting captive insurers for large corporations — appear to have been deferred.
This suggests a cautious approach by the government, prioritising regulatory stability over rapid structural change, possibly to avoid systemic risks in a sector that deals directly with household savings.
Why the Bill Is Likely to Trigger Debate
The Insurance Laws Amendment Bill reflects a hybrid reform strategy. On one hand, it opens the sector decisively to global capital and strengthens the regulator. On the other, it avoids deeper market restructuring that could disrupt existing players.
For supporters, the Bill is a pragmatic step that balances growth, consumer protection and stability. For critics, it represents incrementalism that falls short of transforming India’s insurance landscape.
What to Note for Prelims?
- FDI limit in insurance raised from 74% to 100%
- Net Owned Funds for foreign reinsurers reduced to ₹1,000 crore
- IRDAI granted disgorgement and enhanced enforcement powers
- Greater operational autonomy for LIC
What to Note for Mains?
- Critically evaluate the impact of 100% FDI on insurance penetration and competition
- Discuss the role of IRDAI in balancing consumer protection and ease of doing business
- Analyse the implications of excluding composite licences and lower capital norms
- Examine how insurance reforms align with the goal of “Insurance for All by 2047”
