Context
The Union Cabinet has approved the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025, paving the way for its introduction in Parliament during the Winter Session. The Bill proposes major reforms to India’s insurance sector but has sparked debate due to both significant inclusions and notable omissions.
What is the Insurance Amendment Bill, 2025?
- The Bill seeks to revamp India’s insurance framework by amending three key legislations:
- Insurance Act, 1938
- Life Insurance Corporation Act, 1956
- IRDAI Act, 1999
- The stated objectives are:
- Modernisation of the insurance sector
- Wider insurance coverage and financial inclusion
- Stronger regulatory oversight and governance
- Progress towards “Insurance for All by 2047”
Why was the Bill Introduced?
- India’s insurance penetration remains low compared to global standards, despite having around 70 insurers, while the world has nearly 10,000 insurance companies.
- The government aims to:
- Attract long-term capital
- Encourage innovation and competition
- Strengthen policyholder protection
- Align India’s insurance sector with global best practices
What the Bill Includes (Key Provisions)?
- 100% Foreign Direct Investment (FDI) in Insurance
- FDI limit increased from 74% to 100%
- Expected benefits:
- Large and stable foreign capital inflows
- Technology transfer and global best practices
- Better underwriting, risk management, and claims processing
- Increased competition and product innovation
- Higher insurance penetration and social protection
- This reform signals full globalisation of India’s insurance sector.
- Relaxation for Foreign Reinsurers
- Net Owned Funds (NOF) requirement reduced from ₹5,000 crore to ₹1,000 crore
- Aims to:
- Attract more global reinsurers
- Build domestic reinsurance capacity\
- Increase competition in a segment dominated by GIC Re
- This addresses a long-standing industry demand.
- Enhanced Powers for IRDAI
- The Bill significantly strengthens the insurance regulator:
- Power to disgorge wrongful gains, similar to SEBI
- Introduction of one-time registration for intermediaries
- Threshold for IRDAI approval in equity transfers raised from 1% to 5%
- Formal Standard Operating Procedure (SOP) for rule-making
- Clear and transparent criteria for imposing penalties
- These steps aim to:
- Improve policyholder protection
- Reduce compliance burden
- Make regulation more predictable and accountable
- The Bill significantly strengthens the insurance regulator:
- Greater Operational Freedom for LIC
- The Bill modernises LIC’s governance by allowing:
- Setting up of new zonal offices without government approval
- Flexibility to restructure overseas operations as per host-country laws
- This improves:
- Administrative efficiency
- Global competitiveness
- Responsiveness of India’s largest insurer
- The Bill modernises LIC’s governance by allowing:
What Is Missing from the Bill (Key Omissions)?
- Composite Licence
- No provision allowing insurers to operate in both life and non-life segments
- Current law continues strict separation:
- Life insurers → only life insurance
- General insurers → non-life insurance
- Why this matters:
- Composite licences could have enabled bundled insurance products
- Would improve customer convenience and cross-selling
- Considered global best practice
- Its absence keeps structural silos intact.
- Reduced Capital Norms for New Insurers
- Minimum paid-up capital remains:
- ₹100 crore for insurers
- ₹200 crore for reinsurers
- Why this is a missed opportunity:
- High capital thresholds deter:
- Small and niche players
- Health-only or micro-insurance firms
- Regional and rural-focused insurers
- Lower norms could have boosted:
- Financial inclusion
- Innovation
- Insurance access for informal workers and low-income groups
- High capital thresholds deter:
- Minimum paid-up capital remains:
- Other Excluded Reforms:
- The Bill is also silent on several earlier proposals:
- Allowing insurers to distribute mutual funds, loans, and credit cards
- Greater flexibility in investment norms
- Permitting insurance agents to sell policies of multiple insurers
- Allowing large corporations to set up captive insurance companies
- These reforms could have:
- Created new revenue streams
- Improved risk management
- Modernised India’s insurance ecosystem
- The Bill is also silent on several earlier proposals:
Implications
- Positive:
- Strong signal to global investors
- Improved regulatory capacity
- Greater competition and technology adoption
- Stronger consumer protection
- Concerns:
- Structural rigidity due to lack of composite licences
- Limited entry of niche insurers
- Slower progress on inclusive insurance
Challenges and Way Forward
| Challenges | Way Forward |
| Low insurance penetration | Use FDI inflows to expand rural and social insurance |
| Structural silos in insurance segments | Revisit composite licensing in future reforms |
| High entry barriers for new players | Consider phased reduction in capital norms |
| Limited product innovation | Encourage bundled and micro-insurance products |
| Regulatory compliance burden | Ensure transparent and consistent IRDAI enforcement |
| Missed inclusion opportunities | Target informal workers, MSMEs, and gig economy |
Conclusion
The Insurance Amendment Bill, 2025 marks a major step in liberalising and strengthening India’s insurance sector, especially through 100% FDI and enhanced regulation. However, key omissions such as composite licences and capital norm reforms limit its transformative potential. Future reforms will be crucial to fully realise inclusive and competitive insurance growth.
| Ensure IAS Mains Question Q. Critically examine the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025. To what extent does it address the challenges of insurance penetration and regulatory effectiveness in India? (250 words) |
| Ensure IAS Prelims Question Q. Consider the following statements regarding the Insurance Amendment Bill, 2025: 1. The Bill proposes 100% foreign direct investment in Indian insurance companies. 2. It introduces composite licences allowing insurers to offer both life and non-life insurance. 3. The Bill enhances the enforcement powers of IRDAI. Which of the statements are correct? a) 1 and 3 only Answer: a) 1 and 3 only Explanation Statement 1 is correct: The Insurance Amendment Bill, 2025 proposes increasing the FDI limit in insurance companies from 74% to 100% to attract global capital, improve insurance penetration, and strengthen technology and risk management practices. Statement 2 is incorrect: The Bill does not provide for composite licences. Insurers are still required to operate separately in life and non-life segments, continuing the long-standing structural segregation under the Insurance Act, 1938. Statement 3 is correct: The Bill enhances IRDAI’s regulatory powers by allowing disgorgement of wrongful gains, clearer penalty frameworks, streamlined registrations, and a formal SOP for rule-making, thereby strengthening consumer protection and regulatory governance. |
