India Approves 100% Foreign Direct Investment in Insurance Sector: A Major Reform for Market Growth

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The Union Cabinet has approved a bill on Friday to increase foreign direct investment in the insurance sector to 100 percent, according to sources, as part of efforts to expand insurance penetration across the country.

The bill is expected to be introduced during the ongoing winter session of Parliament, which is scheduled to conclude on December 19.

A Lok Sabha bulletin indicates that the Insurance Laws (Amendment) Bill 2025 is among 13 legislations listed for the current parliamentary session. This bill aims to deepen market penetration, accelerate growth in the insurance sector, and enhance ease of doing business.

Sources suggest the Insurance Laws (Amendment) Bill, 2025, may be presented in Parliament as early as Monday.

Finance Minister Nirmala Sitharaman had proposed raising the foreign investment limit from 74 percent to 100 percent in the insurance sector during her Budget speech this year, framing it as part of new-generation financial sector reforms.

To date, the insurance sector has attracted Rs 82,000 crore through foreign direct investment (FDI).

The finance ministry has proposed amendments to various provisions of the Insurance Act, 1938, including the FDI increase, allowing non-insurance companies to merge with insurance companies, and establishing a dedicated fund for policyholders.

According to sources, the proposed legislation includes a provision requiring at least one top management position—such as Chairman, Managing Director, or CEO—to be held by an Indian citizen as a safeguard. Sources added that the Cabinet has maintained existing net worth requirements for insurance companies.

As part of a comprehensive legislative approach, amendments will be made to the Life Insurance Corporation Act 1956 and the Insurance Regulatory and Development Authority Act 1999, alongside the Insurance Act 1938.

The amendments to the LIC Act propose empowering its board to make operational decisions independently, including branch expansion and recruitment initiatives.

The proposed amendments primarily focus on advancing policyholders' interests, strengthening their financial security, and facilitating more players to enter the insurance market, which would drive economic growth and create employment opportunities.

These changes aim to improve the efficiency of the insurance industry, facilitate ease of doing business, and increase insurance penetration to achieve the goal of 'Insurance for All by 2047'.

The Insurance Act of 1938 serves as the principal legislation providing the framework for insurance in India. It governs the functioning of insurance businesses and regulates relationships among insurers, policyholders, shareholders, and the regulatory authority, IRDAI.

Commenting on the proposed legislation, Aditya Birla Sun Life Insurance MD and CEO Kamlesh Rao noted that while the move may encourage more global players to explore India, translating interest into meaningful scale will depend on how effectively new entrants navigate the distribution landscape.

"Over the past few months, we have seen growing interest from several global insurers who are actively evaluating India as a long-term market, and greater clarity on ownership norms will help in moving those conversations forward," said Deloitte India partner Debashish Banerjee.

According to Grant Thornton Bharat partner Narendra Ganpule, this initiative is designed with policyholders in mind, fostering an environment that offers more choice, encourages innovative products, ensures competitive pricing, and aims to deliver improved service standards.

RenewBuy CEO Balachander Sekhar stated that the shift to 100 percent FDI will bring global capital and expertise into the Indian insurance market.