Insurance Bill 2025

Q1. Why is insurance penetration low in India and what is its current status?

1. Insurance is often considered a waste of money in India because premium payments do not give immediate returns; benefits arise only during mishaps.
2. Insurance Penetration (India) = Premium / GDP = ~4% (low)
   1. Global average: ~7%
   2. Developed countries: 10%+
3. India has low penetration both in terms of population coverage and premium size.

Q2. What are the key terms related to the insurance sector?

1. Insurance Regulatory and Development Authority of India (IRDAI): Regulates and develops the insurance sector.
2. Insurer: Company providing insurance.
3. Insured: Person paying premium to get coverage.
4. Reinsurer: Provides insurance to insurance companies to cover large risks (e.g., earthquake).
5. Intermediaries: Third parties like brokers, surveyors, agents who facilitate insurance transactions.

Q3. What changes have been made regarding FDI in the Insurance Bill, 2025?

Insurance is a capital-intensive, long-gestation sector, hence FDI is encouraged.

Evolution of FDI:

1. Before 2000: 100% Indian companies
2. 2000s: 26% FDI allowed
3. 2015: 49% FDI
4. 2021: 74% FDI
5. 2025: 100% FDI allowed

Impact:

1. Positive: Increased capital inflow, adoption of global best practices, job creation, better infrastructure and claim settlement.
2. Negative: Increased control of foreign companies.

Q4. What are the key structural and regulatory reforms introduced in the Bill?

1. NOF (Net Owned Fund):
   1. Reduced from ₹5000 Cr to ₹1000 Cr.
   2. Enables entry of smaller companies.
   3. Leads to more branches and financial inclusion.
2. Disgorgement Powers
   1. Earlier: IRDAI could impose penalties only
   2. Now: IRDAI can recover illegal/wrongful gains
3. Intermediaries
   1. Earlier: Multiple registrations/ approval for different activities required
   2. Now: Single registration + less paperwork
4. Equity Transfer Rules
   1. Earlier: IRDAI approval needed for >1% transfer
   2. Now: IRDAI approval is needed only when equity transfer >5%.

Q5. What consumer protection and governance reforms have been introduced?

1. Policyholders’ Education and Protection Fund (PEPF):
   1. Fund created using penalties and donations
   2. Used for awareness, grievance redressal, insurance literacy
2. Data Security
   1. Earlier: Weak protection
   2. Now: Strong safeguards against data leaks, hacking and unauthorized access. Robust consent mechanism, strong encryption and heavy penalties are being imposed.
3. Penalty Rationalization
   1. Earlier: Vague and inconsistent penalties
   2. Now: Clear and proportionate penalties up to ₹10 crore. Covers unregistered intermediaries also. Public disclosure of penalties is also required now.
4. Transparent SOPs
   1. Earlier: Limited transparency
   2. Now: IRDAI must follow transparent Standard Operating Procedures (SOPs), including publishing draft regulations and conducting periodic reviews with clear and concise language used in the rules.
5. Permits Online Premium Payments
   1. Earlier: Coverage started after cheque clearance
   2. Now: Coverage starts immediately after online payment

Q6. What key issues remain unresolved in the Insurance Bill, 2025?

1. No Composite Licence: Life and non-life insurance businesses remain separate.
2. No Reduction in Capital Norms: Minimum paid-up capital [₹100 Cr (insurers), ₹200 Cr (reinsurers)] remains unchanged.
3. No Cross-selling Allowed: The Bill is silent on allowing insurers to distribute mutual funds, loans, and credit cards.
4. No Flexibility in Investment Norms: Limited freedom in investing policyholder funds
5. No Multi-insurer Agency Model: Agents cannot sell policies of multiple insurers