Amendment of Insurance Laws Bill, 2025

Syllabus: GS2/Governance; GS3/Economy

Context

• The Union Cabinet approved the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025.

About

• The Bill seeks to revamp India’s insurance framework, proposing changes to the: Insurance Act, 1938, the Life Insurance Corporation Act, 1956, and the IRDAI Act, 1999.
• Aim: Modernisation, wider coverage and stronger regulatory oversight.

Major Features

• 100% FDI: The amendment will raise the Foreign Direct Investment (FDI) limit in Indian insurance companies from 74% to 100%. 
  • This will help in attracting stable and sustainable investment and aid achieve the goal of ‘Insurance for All by 2047’. 
• Foreign reinsurers: The requirement of Net Owned Funds (includes equity capital, free reserves, balance in share premium account and capital reserves representing surplus) for foreign reinsurers is proposed to be reduced from Rs 5,000 crore to Rs 1,000 crore.
  • It has been done to facilitate entry of more re-insurers, building greater reinsurance capacities in the country. 
  • This easing of norms is intended to draw competition in the segment currently dominated by the public sector General Insurance Corporation of India (GIC Re).
• More powers for LIC: Life Insurance Corporation of India (LIC) is being given greater operational freedom.
  • It empowered LIC to set up new zonal offices without requiring prior government approvals, enabling faster expansion, improved administrative efficiency, and better regional oversight.
• More powers for IRDAI: The Insurance Regulatory and Development Authority of India (IRDAI) is set to receive enhanced enforcement powers, including the authority to disgorge wrongful gains made by insurers or intermediaries.
  • This brings IRDAI’s punitive capabilities closer to that of SEBI, which already has the power to recover illegally earned profits from violators.
• One-Time Registration System: The Bill proposes a one-time registration system for insurance intermediaries, removing the need for repeated approvals and simplifying compliance. 
• Ease of Doing Business: The threshold for requiring IRDAI’s approval for the transfer of paid-up equity capital in insurance companies will be raised from 1% to 5%, allowing for smoother share transfers and reducing regulatory bottlenecks.
• Penalties: The Bill introduces clear criteria for levying penalties, making enforcement more rational, transparent, and consistent across cases. 

Key Omissions in the Insurance Amendment Bill

• No composite licensing despite long-standing demand: The Bill does not allow composite licences, meaning insurers must continue operating in rigid units such as life insurers only in life insurance and general insurers only in non-life segments.
  • This preserves a decades-old structure and prevents insurers from offering integrated insurance, despite growing consumer demand for comprehensive and convenient coverage.
• No relaxation in minimum capital requirements for new entrants: The Bill retains high entry thresholds of ₹100 crore for insurers and ₹200 crore for reinsurers.
  • These capital norms continue to discourage smaller, regional, and niche insurers, preventing the entry of specialised players.
• Several earlier reform proposals dropped: Provisions in earlier drafts—such as allowing insurers to distribute other financial products, giving greater flexibility in investment norms, and permitting agents to sell policies of multiple insurers—are missing.
  • This restricts new revenue streams, limits consumer choice, and reduces efficiency in insurance distribution.
• Silence on captive insurance companies: The Bill does not address the long-pending proposal to allow large corporations to set up captive insurers.
  • This keeps India’s risk-management framework underdeveloped and forces corporates to rely on external or overseas structures instead of regulated domestic captive insurance solutions.

Significance of the Bill

• FDI limit raised to 100% as a major reform: Allowing 100% FDI is expected to attract substantial foreign capital into the insurance sector.
• Access to global best practices and technology: Full foreign ownership will enable Indian insurers to adopt advanced underwriting models, digital claims platforms, and sophisticated risk-assessment tools.
• Boost to innovation and competition: Increased foreign participation is likely to intensify competition, spur product innovation, and encourage the development of more customer-centric and technology-driven insurance solutions.

Source: IE