Why in news?

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 framework by amending the Insurance Act, 1938, LIC Act, 1956, and IRDAI Act, 1999, aiming at modernisation, expanded insurance coverage, and stronger regulatory oversight. Key positives include the long-awaited provision for 100% FDI in insurance.

However, several industry demands—such as the introduction of a composite licence—have been excluded or diluted, leading to mixed reactions from stakeholders.

Overall, the Bill seeks to balance industry growth, consumer protection, and broader financial sector reforms, and is expected to generate significant parliamentary debate.

What’s in Today’s Article?

• Key Provisions of the New Insurance Bill
• What the Insurance Amendment Bill Leaves Out?
• Conclusion

Key Provisions of the New Insurance Bill

• The Union Cabinet has approved a major change in India’s insurance rules by allowing full foreign ownership in insurance companies.
• The decision aims to bring more capital, improve competition, and strengthen customer services across the sector.
• The Bill advances liberalisation, regulatory capacity, and ease of doing business in insurance, while strengthening policyholder protection.
• 100% Foreign Direct Investment (FDI) in Insurance
  • Raises FDI cap from 74% to 100% in Indian insurance companies.
  • Aims to attract long-term foreign capital, enhance insurance penetration, promote technology transfer, and support the goal of ‘Insurance for All by 2047’.
  • Expected impacts: greater competition, product innovation, customer-centric services, and adoption of global best practices in underwriting, risk management, and digital claims.
• Easing Entry for Foreign Reinsurers
  • Reduces Net Owned Funds (NOF) requirement for foreign reinsurers from ₹5,000 crore to ₹1,000 crore.
  • Addresses a long-standing demand to widen participation beyond the public sector GIC Re.
  • Expected to boost reinsurance capacity, competition, and risk diversification in India.
• Enhanced Powers for IRDAI
  • Grants IRDAI disgorgement powers to recover wrongful gains—bringing it closer to SEBI’s enforcement toolkit.
  • Introduces a one-time registration for insurance intermediaries to simplify compliance.
  • Raises the threshold for IRDAI approval of equity transfers from 1% to 5%, easing business operations.
  • Mandates a formal SOP for regulation-making and clear penalty criteria to improve transparency, predictability, and consistency.
• Greater Operational Autonomy for LIC
  • Allows LIC to set up new zonal offices without prior government approval, enabling faster expansion and administrative efficiency.
  • Permits restructuring of overseas operations in line with host-country laws, strengthening LIC’s global footprint.
  • Overall goal: modernise LIC’s governance and enhance competitiveness domestically and internationally.

What the Insurance Amendment Bill Leaves Out?

• No Composite Licence: A Major Miss
  • The Bill is expected to exclude composite licences, a long-pending industry demand.
  • Currently, insurers are confined to strict silos: life insurers cannot sell non-life products and vice versa.
  • A composite licence would have allowed a single insurer to offer life, health, and general insurance under one roof.
  • Its absence preserves long-standing structural rigidities, limits bundled offerings, and curbs competition, despite global best practices favouring integrated models.
• No Reduction in Capital Norms for New Entrants
  • The Bill is unlikely to lower minimum capital requirements (₹100 crore for insurers, ₹200 crore for reinsurers).
  • High entry barriers continue to deter small, niche, regional, and specialised insurers.
  • Lower capital norms could have boosted insurance penetration, especially in rural areas, among gig workers, MSMEs, and low-income households.
  • The omission is seen as a setback for financial inclusion and innovation.
• Dropped Proposals from Earlier Drafts
  • Several reforms discussed in earlier versions appear missing:
    • Permission for insurers to distribute other financial products (mutual funds, loans, credit cards).
    • Greater flexibility in investment norms to improve policyholder returns.
    • Allowing individual agents to sell policies of multiple insurers, beyond the current one-life–one-general restriction.
• No Provision for Captive Insurance Companies
  • The Bill is silent on allowing large corporations to set up captive insurers.
    • A captive insurance company is a wholly-owned subsidiary created by a parent company to insure its own risks.
  • Captives are widely used globally to manage complex risks, reduce insurance costs, and improve underwriting control.
  • Their exclusion delays modernisation of India’s corporate risk-management ecosystem.

Conclusion

While the Bill delivers key reforms like 100% FDI and stronger regulation, it stops short of deeper structural changes.

The absence of composite licences, lower capital norms, and captives represents missed opportunities to accelerate competition, inclusion, and innovation in India’s insurance sector.