Insure All Protect All: India Opens the Insurance Sector to 100% FDI

On 16 and 17 December 2025, the Lower and Upper House of the Parliament respectively passed the much-anticipated Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025 (Bill). The Bill proposes amendments to the Insurance Act 1938, the Life Insurance Corporation Act 1956, and the Insurance Regulatory and Development Authority Act 1999.

The amendments primarily focus on promoting policyholders’ interests, enhancing the financial security of the policyholders, facilitating entry of more players in insurance market thereby leading to economic growth and employment generation, enhancing efficiencies of the insurance industry, enabling ease of doing business and enhancing insurance penetration to achieve goal of “Insurance for All” by 2047. The Bill also grants more power to the insurance regulator, i.e. the Insurance Regulatory and Development Authority of India’s (IRDAI) to further strengthen its oversight over the insurers and intermediaries.

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

Key amendments introduced by the Bill

1. 100% FDI: The most noteworthy change sought to be implemented by the Amendment Bill is the increase in FDI in insurance companies from 74% to 100%. This move is being appreciated as a significant step towards the growth of the insurance sector, as it promises 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 newly introduced Section 3AA requires that any increase in foreign investment shall be in the manner, and subject to such conditions, as may be prescribed by the Central Government. It appears that the relaxation in the FDI cap will be tied to the proposed changes in the Draft Rules, which are:
   1. The requirement of having only one individual among the Chairperson, Managing Director, or Chief Executive Officer of the insurance company as a resident Indian citizen. 
   2. Deletion of earlier provision in the Foreign Investment Rules which mandated companies with more than 49% foreign investment to appoint 50% independent directors as part of its Board. The Draft Rules relax this requirement to 3 independent directors. 
   3. 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. 
2. Amended definition of “Insurance Business”: The Insurance Act 1938 did not contain any definition of “insurance business”. The Bill now seeks to define this term to mean the business of effecting insurance contracts, as well as any other form of contract that may be notified by the Central Government in consultation with the IRDAI from time to time. What presently remains unclear is whether such other contracts will include non-insurance activities, or will they only be restricted to services fundamentally connected to the insurance business.
3. Wider powers to IRDAI: The Bill enhances the IRDA’s powers by allowing it to frame new regulations and amend existing regulations (without publishing draft regulations) where such amendments/regulations only concern internal functioning of the IRDAI, or are required in the public interest. Interestingly, the IRDAI is now empowered to disgorge wrongful gains made by the insurers/intermediaries. 
4. Share capital transfers: The Bill raises the regulatory approval threshold to 5% from the current 1% for share capital transfers in insurance companies. The change is expected to encourage investment in these companies without having to route the same through the regulator.
5. Recognition of online premium payment: The Bill has introduced a definition of “premium” which means the amount paid or payable as consideration to the insurer by the policy holder for a contract of insurance. Recognising the prevalent market practices, the Bill also provides recognition to online modes of premium payment to insurers. 
6. Mergers with non-insurance companies: In yet another bold shift, the Bill provides that the merger of insurance business of an insurer with the non-insurance business of a company may be achieved subject to the prior approval of the IRDAI. It is expected that the IRDAI will be prescribing specific regulations and mechanisms governing such amalgamation or transfer of insurance and non-insurance businesses. 
7. Higher penalties for violations: The Bill enhances the maximum penalty for violations of the Insurance Act and associated regulations from INR 1 crore (c. $110k) to INR 10 crores (c. $1.1m). Additionally, in determining the quantum of penalty for any contravention or default, the IRDAI will take into account factors/tests prescribed under the Bill, including the nature, severity, and duration of the default, repetitiveness of the violation, any disproportionate gain or unfair advantage derived by the violation, and the loss suffered by policyholders as a consequence of the default.
8. Changes to reinsurance: The Bill lowers the minimum capital requirement for foreign reinsurance branches and Lloyd’s or its members to ₹1,000 crores (c. $110m) from ₹5,000 crores (c. $553m). This change has aligned the net owned fund limits for reinsurers with those prevailing in GIFT City and is again proposed with the expectation of encouraging greater participation of foreign reinsurers in India.
9. One-time registration and introduction of MGAs: To simplify compliance and ensure continuity, the Bill introduces one-time registration for insurance intermediaries. Further, the definition of “insurance intermediaries” now includes Managing General Agents (MGAs), who are specialised underwriters and distribution partners enjoying delegated authority from the insurers.

The Bill will now be presented for the assent of the President.