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LS passes Bill to increase FDI to 100% in insurance
Sitharaman highlighted over a dozen key features of the insurance bill.
New Delhi: Enhancing foreign direct investment (FDI) limit to 100% will enable global insurance companies to inject substantial capital directly without waiting for domestic partners, Union finance minister Nirmala Sitharaman told the Lok Sabha on Tuesday as the House passed the insurance bill seeking to remove the FDI cap along with over a dozen key sectoral reforms.
“If there’s a need for growing protection through insurance in this country, we need to have insurance more accessible,” she said while replying to an intense debate on the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025. Citing investors’ feedback, she said the current FDI cap at 74% is an impediment for global firms because searching for a suitable Indian partner to match balance 26% equity contribution is a “mammoth” effort.
“Now, by doing this we are able to bring them into the country directly,” the minister said, adding that they are, however, subject to all the Indian laws passed by Parliament. To be sure, India has very low policy coverage and in September, the 56th Goods and Services Tax Council removed the 18% GST on individual health and life insurance premiums to enhance insurance penetration.
Sitharaman highlighted over a dozen key features of the insurance bill. Her first point was related to a policy holders’ education and protection fund to spread insurance awareness among people both in terms of coverage as well as receiving their dues. The second feature of the bill is to ensure “better regulatory oversite” to ensure companies’ conduct in insurance business in an orderly and transparent manner. Third, an introduction of a one-time registration for insurance intermediaries to ensure uninterrupted service to citizens, she said. It will promote ease of doing business for service providers and reduce regulatory delays, she added.
Her fourth point was related to inflow of foreign capital that will also bring world-class risk assessment techniques and global best practices along with innovative insurance products. Another feature of the bill is “standardising the regulation-making process” by introducing standard operating procedure (SOPs) with a “mandatory” public consultation, the FM said.
The other feature of the proposed law is introducing suspension of intermediary licenses instead of their termination so that such entities could have time to correct themselves and continue serving citizens. The bill also has provisions for merger of a non-insurance company with an insurance firm. This would promote a “simplified” corporate structure, she said. Regulator has been also empowered through this bill for “disgorging wrongful gains” and compensating the victim, she added.
Sitharaman said the bill also raises the cap for prior regulatory approval for transfer of share capital from 1% to 5%. It aims to reduce compliance burden, she added. The other feature is the reduction of the net-owned fund requirement for foreign reinsurance branches from ₹5,000 crore to ₹1,000 crore. This, she said, would invite more of them to come into the country and create greater risk management. The bill also provides further autonomy to state-owned Life Insurance Corporation (LIC), including autonomy in opening of its regional branches.
The bill also proposes to rationalise penalties on erring companies or defaulting entities by raising maximum penalty amount to ₹10 crore from current level of ₹1 crore. “Now insurance intermediaries have also been included under this provision. This would act as a deterrent and encourage legal and regulatory compliance,” she added.
Before initiating debate on the bill on Tuesday evening, Sitharaman told the Lok Sabha that the aim of the legislation is to have greater insurance penetration, ease of compliance and further strengthening regulatory oversight.
The introduction of the bill — which proposes to amend the Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and the Insurance Regulatory and Development Authority Act, 1999 — faced a strong protest from the Opposition.
Opening the debate in the House, Congress MP Manickam Tagore questioned the hurry in passing the bill and said: “This Bill is wrapped in comforting words, ‘Sabka Bima Sabki Raksha’ but let us read the fine prints. Section 3AA allows 100% FDI in insurance not 74%, not shared control but complete foreign ownership. That means pricing decisions made outside India…” He added that boards of foreign entities would make policies from overseas. “When risk is pushed away from the state to citizens, democracy itself becomes fragile,” he said.
Experts said the bill has empowered the regulator, the Insurance Regulatory and Development Authority of India (IRDAI), to ensure fair play. Sidharrth Shankar, partner at JSA Advocates & Solicitors, sums up key details: “The bill delegates IRDAI with extensive powers to form regulations for policyholder protection including on key matters such as amalgamation of insurance and non-insurance business, commission payments and increases penalties from ₹1 crore to up to ₹10 crore with the objective of forming an enabling and protectionist environment.”
“Composite licensing and value-added services remain outside the contours of the bill. It is interesting to note that the Central government and the IRDAI have been granted powers to notify other classes of insurance business and other business activities for insurance companies, without the requirement of amending the Insurance Act,” he said.
In her initial remarks, Sitharaman said the Modi government has brought several flagship insurance schemes to protect the poor with minimal premia such as Pradhan Mantri Jeevan Jyoti Bima Yojana, PM Suraksha Bima Yojana, Ayushman Bharat Pradhan Mantri Jan Arogya Yojana and Pradhan Mantri Fasal Bima Yojana. She explained that the gradual opening up of the insurance sector helped in its expansion.
Foreign insurers were first allowed entry by the Atal Bihari Vajpayee government in 2000, when it allowed FDI up to 26%. The sectoral cap was raised to 49% in 2015 and 74% in 2021 with conditions attached. Reforms in the sector helped in its expansion with Insurance penetration rising from 3.3% in 2014-15 to about 3.8% now. Insurance density (average insurance premium paid per person in a year) also increased from $55 in 2014-15 to $97 and the total amount of insurance premium jumped from ₹4.15 lakh crore in 2014-15 to ₹11.93 lakh crore
