The passage of the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025 marks a decisive shift in India’s insurance policy by permitting 100% foreign direct investment (FDI) across the sector. The move reflects a growing recognition that insurance is not merely a financial product, but a long-gestation risk-bearing institution that requires deep and patient capital — something India’s domestic ecosystem has struggled to provide at scale.
Why the reform was considered necessary
India’s insurance penetration remains among the lowest for a major economy, particularly in non-life and health segments. According to the 66th Report of the Standing Committee on Finance (2023–24), insurers require sustained long-term capital to maintain solvency margins, absorb underwriting risk, and invest in technology and distribution.
Private insurers face structural constraints. Domestic promoters often lack both the capacity and incentive to repeatedly infuse capital into a business that takes years, sometimes decades, to break even. High domestic capital costs and prolonged loss phases have limited expansion into underserved and high-risk segments. The result is shallow coverage in precisely those areas where insurance is most needed.
The gradual path to full liberalisation
India’s insurance sector has not been opened overnight. Liberalisation began in August 2000, ending the monopoly of “” and “”, and allowing private participation with foreign ownership capped at 26%.
This ceiling was raised to 49% through the 2015 amendment to the Insurance Act, 1938, and further to 74% in 2021. The 2025 amendment completes this trajectory by permitting 100% foreign ownership, signalling the government’s confidence in the maturity and regulatory capacity of India’s insurance ecosystem.
How higher FDI could reshape the sector
The primary argument for full FDI lies in addressing capital scarcity. Insurance is capital-intensive by design. Foreign investment can provide stable, long-term funds that domestic promoters struggle to mobilise.
Beyond capital, foreign insurers bring advanced actuarial science, sophisticated risk pricing models, and global experience in product innovation. These capabilities can expand consumer choice, improve underwriting discipline, and support entry into low-penetration segments such as health, agriculture, and catastrophe insurance.
Foreign investors are also better positioned to absorb initial losses while building new markets. Their diversified global portfolios allow them to finance long-term market creation — something risk-averse domestic capital often avoids. In this sense, higher FDI is expected to complement, rather than displace, public sector insurers by strengthening competition without dismantling state-backed stability.
Global precedents and investor response
Several major economies have moved toward liberal foreign ownership in insurance. China now allows 100% foreign ownership, enabling firms such as Chubb and Manulife to acquire full control of local operations. Countries like Canada, Australia, and Brazil have similarly relaxed restrictions.
In India, the policy shift has already triggered signals of fresh capital. The Generali Group has announced plans to inject additional funds into its Indian operations, illustrating how full ownership can unlock investment commitments that were previously constrained by joint venture limits.
Concerns and risks that accompany full opening
Despite its promise, the reform is not without risks. The presumed superiority of foreign insurers is contested, particularly in light of the global financial crisis and documented cases of misconduct. A 2014 report by the Korea Finance Consumer Federation found foreign life insurers disproportionately involved in financial fraud in South Korea, highlighting regulatory challenges even in advanced economies.
Foreign insurers may also struggle to adapt to India-specific distribution models such as bancassurance and to design affordable products for low-income populations. There are concerns about profit repatriation reducing long-term domestic value creation, as well as diminished local decision-making when firms are fully foreign-owned. Aggressive risk-taking by global insurers could also introduce volatility into a relatively stable sector.
The role of regulation in managing liberalisation
Recognising these risks, the amendment strengthens regulatory oversight. The “” (IRDAI) has been empowered to disgorge wrongful gains from insurers and intermediaries, with penalties enhanced from ₹1 crore to ₹10 crore.
Effective regulation will be the hinge on which this reform turns. Without strong supervision, transparency, and enforcement, capital inflows alone will not translate into broader coverage or consumer protection.
What this reform ultimately signifies
Allowing 100% FDI reflects the government’s belief that India’s insurance sector has reached a stage where openness can coexist with stability. If implemented with robust oversight, the reform could ease capital constraints, spur innovation, and expand coverage to underserved populations.
But success will depend less on ownership ceilings and more on regulatory capacity. Insurance liberalisation is not a guarantee of inclusion; it is an opportunity that must be actively governed.
What to note for Prelims?
- FDI limits in the insurance sector over time
- Role and powers of IRDAI
- Objectives of the Sabka Bima Sabki Raksha Bill, 2025
What to note for Mains?
- Capital constraints in India’s insurance sector and how FDI addresses them
- Risks of full foreign ownership and the need for regulation
- Balancing public sector stability with private competition
- FDI in insurance as a tool for financial inclusion, not an end in itself
