India Proposes 100% FDI in Insurance Sector with New Amendment Bill: Comprehensive Reforms for Policyholder Protection and Market Growth

Finance Minister Nirmala Sitharaman introduced the Insurance Laws (Amendment) Bill, 2025, known as "Sabka Bima Sabki Raksha," in the Lok Sabha on Tuesday. This bill aims to enhance policyholder protection, increase insurance penetration, and boost sector growth across India.

The legislation proposes amendments to several key acts including the Insurance Act of 1938, the Life Insurance Corporation Act of 1956, and the Insurance Regulatory and Development Authority of India (IRDAI) Act of 1999. These changes align with the government's vision of achieving "Insurance for All by 2047" while improving the ease of doing business in the insurance sector.

A significant feature of the bill is the proposal to increase Foreign Direct Investment (FDI) limits in Indian insurance companies from the current 74 percent to 100 percent. This initiative intends to attract stable long-term foreign capital, facilitate technology transfer, and expand insurance coverage and social security throughout the country.

To strengthen consumer safeguards, the bill proposes establishing a Policyholders' Education and Protection Fund. This fund will focus on raising insurance awareness and protecting policyholder interests. Additionally, IRDAI would receive authority to disgorge wrongful gains, enabling the regulator to recover illegal or unfair profits made by insurers and intermediaries.

The legislation also creates a legal framework for developing and utilizing digital public infrastructure in the insurance sector, with emphasis on securing policyholder data. This approach aims to support innovation while maintaining data privacy and cybersecurity standards.

To streamline business operations and ensure continuous customer service, the bill proposes one-time registration for insurance intermediaries. Furthermore, the threshold requiring IRDAI approval for share transfers in insurance companies would increase from the current 1 percent to 5 percent of paid-up equity capital.

The reinsurance sector would see significant changes with the proposed reduction in Net Owned Fund requirements for foreign reinsurers from Rs 5,000 crore to Rs 1,000 crore. This adjustment is expected to encourage more global reinsurers to enter the market and enhance domestic reinsurance capacity.

The bill grants greater operational autonomy to the state-owned Life Insurance Corporation of India (LIC), allowing it to establish zonal offices and align its international operations with the regulations of respective jurisdictions.

For improved regulatory governance, the amendments propose introducing a Standard Operating Procedure for regulation-making under the IRDAI Act. Additionally, a transparent framework for penalty imposition is suggested, with clearly defined factors to guide fair enforcement.

This comprehensive legislation is expected to expand insurance coverage, bring more citizens under the insurance security net, and encourage participation from more insurers, agents, and intermediaries. These changes aim to drive faster growth while ensuring stronger protection for policyholders across India.