India inches closer to 100% FDI in insurance sector

India inches closer to 100% FDI in insurance sector

The Indian Ministry of Finance has recently issued a draft of the Indian Insurance Companies (Foreign Investment) Amendment Rules, 2025, which is seen as a precursor to much anticipated move of increasing the foreign direct investment (FDI) in insurance sector from 74% to 100%. This proposal is yet another step of the Indian government towards its goal of “Insurance for All” by 2047.

Background

For quite a few years, the Indian government had been working on the proposal for allowing 100% FDI in the insurance sector to improve the insurance penetration in the country, which currently rests below 5%. In order to increase this number, the government, along with the local regulator, Insurance Regulatory and Development Authority of India (IRDAI) came up with the vision of “Insurance for All” by 2047. While realising that insurance is a capital-intensive sector, the government identified the need of more market players to achieve this goal. 

With this objective in mind, the Indian Ministry of Finance, on 26 November 2024, put its stamp of approval to the proposal of 100% FDI in the insurance sector, whereby it issued an Office Memorandum inviting comments on various proposed changes to the Insurance Act, 1938 under the Insurance Laws (Amendment) Bill, 2024. The main changes sought to be included in the Insurance Act, 1938 include raising the FDI limit in Indian insurance companies from 74% to 100%, and enabling an insurer to carry out one or more classes of insurance business and activities related/incidental to insurance. The move to increase the FDI limits is indeed being seen as the one to reshape India’s insurance sector through the introduction of well-capitalised foreign insurers.

The Insurance Laws (Amendment) Bill, 2024 remains to be introduced in the Parliament and is likely to be put forth in the upcoming winter session (November 2025).

Further steps towards 100% FDI

While the changes to the Insurance Act, 1938 (including the increase in the FDI limit) remain to come into force, the Government has already initiated steps to introduce changes to legislations which will need to be amended in light of the proposed FDI increase, and to ensure consistency within the statutory framework. 

On 29 August 2025, the Ministry of Finance (Department of Financial Services) issued draft amendments to the Indian Insurance Companies (Foreign Investment) Rules, 2015 (Amended 2015 Rules). The Indian Insurance Companies (Foreign Investment) Rules, 2015 (2015 Rules) were notified by the Central Government to regulate foreign investment in Indian insurance companies and intermediaries. The 2015 Rules were framed under the Insurance Act, 1938 and the Insurance Regulatory and Development Authority Act, 1999, setting out the framework for FDI and foreign portfolio investment (FPI) in the sector as per the applicable Foreign Exchange Management regulations. 

The key amendments proposed in the Amended 2015 Rules are as follows: 

1. The existing reference to 74% foreign investment in Indian insurance companies (contained in 2015 Rules) has been removed and the same has been substituted to allow the foreign investment up to the paid-up capital limit specified under the Insurance Act, 1938. This is to align the limits under 2015 Rules with the proposed increased limit under the Insurance Act, 1938 through the impending amendments. 
2. Deletion of sub clause (a) and (b) along with explanation in sub-rule (1) of Rule 4 of the 2015 Rules which mandated that Indian insurance companies with foreign investment shall have majority of its directors and Key Managerial Persons (KMP) as Indian citizens. The Amended 2015 Rules have only retained the requirement of having one individual among the Chairperson, Managing Director, or Chief Executive Officer of the company as a resident Indian citizen. 
3. Deletion of Rule 4A of 2015 Rules which mandated companies with more than 49% foreign investment to appoint 50% independent directors as part of its Board. The obligation has now been relaxed to 3 independent directors. Further, the obligation on such companies to transfer 50% of net profits to general reserves under specified conditions is also done away with.
4. Deletion/relaxation of various requirements imposed on insurance intermediaries with majority shareholding of foreign investors, including those related to the residency of directors/KMPs, prior approval of the regulator for repatriation of dividend, composition of the company’s board to be as per the directions of regulators, etc. 

Lastly, the Amended 2015 Rules will apply to both the existing companies as well as the new entrants. This means that upon implementation, these Rules are likely to prompt the recalibration of the boards and corporate governance frameworks in the existing joint ventures as well. 

The Ministry of Finance invited comments and objections from all concerned stakeholders on the Amended 2015 Rules within 15 days, after which they are to be published in the Gazette of India.

Remarks

The proposal for increase in FDI limit is being hailed as a step towards the growth of the insurance sector, as the move is likely to bring much needed capital fuel, along with global expertise and innovative products. The increased foreign participation is likely to also bring down premiums and promote healthy competition between the domestic and foreign players. The major beneficiary of this competition is going to be the consumer, including the currently unserved/underserved consumers. 

The proposed changes to the Amended 2015 Rules make it clear that the government’s intent is not limited to encourage foreign investment in the insurance sector, but it extends to provide a more friendly regulatory environment to both the new foreign entrants, as well as the existing ventures with foreign investment, in terms of managerial autonomy and compliances. The Amended 2015 Rules promise a level playing field across the insurance companies in India. 

Introduction of these draft rules mark a significant liberalisation of the Indian insurance sector, aimed at reducing compliance burdens for the companies with foreign investment, enhancing their operational flexibility, and consequently paving way for increased global participation through the proposed 100% FDI limit.

Authors

Sumeet Lall, Partner, CSL Chambers

Siddharth Mishra, Legal Director, CSL Chambers

Palak Rawat, Associate, CSL Chambers
 

**CSL Chambers, is an associated firm of Clyde & Co LLP, a Full Service Global Law Firm.

For any inquiries, please feel free to contact the authors