New Insurance Bill 2025: Full Foreign Investment Now Allowed in India’s Insurance Sector

In a historic move, the Lok Sabha on Tuesday, December 16, approved the ‘Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025’, paving the way for 100% foreign direct investment (FDI) in India’s insurance sector. The bill, passed by voice vote, saw the House reject opposition amendments, marking a major step in opening up the sector to global investors.

Finance Minister Nirmala Sitharaman highlighted that the Insurance Act has been amended 12 times to reflect the evolving needs of the sector. She emphasized that the new amendment is designed to protect policyholders, support farmers, and strengthen public sector insurance companies. She also revealed that more than ₹17,000 crore has been invested in improving the financial health of three public sector insurers, significantly boosting their stability.

Key Highlights and Benefits

• FDI increase: The amendment raises the FDI limit from 74% to 100%, allowing global insurers to invest more freely while maintaining an Indian citizen as chairman, MD, or CEO to safeguard domestic leadership.

• Policyholder protections: The bill empowers the Insurance Regulatory and Development Authority of India (IRDAI) to recover illegal profits earned by insurance companies and redistribute them to affected policyholders.

• LIC and agents benefit: The Life Insurance Corporation of India (LIC) will gain greater operational autonomy, while insurance agents are expected to benefit from an expanded market and better business opportunities.

• Mergers allowed: Non-insurance companies can now merge with insurance firms, enabling new partnerships and business models.

• Fund reduction for reinsurance: The net owned fund requirement for reinsurance companies has been lowered from ₹5,000 crore to ₹1,000 crore, encouraging competition and innovation.

• Extended tenure: The term for full-time members is extended to five years or until age 65, ensuring stability in governance (previously, the upper age limit was 62 for members and 65 for the chairman).

• Policyholder Fund: The bill proposes a Policyholders Education and Protection Fund, aimed at educating and protecting the interests of policyholders.

• Ease of business: The amendment seeks to bring greater transparency, regulatory oversight, and ease of doing business for insurers, intermediaries, and stakeholders.

Addressing Concerns

Some opposition members raised concerns that premiums could flow to foreign investors. Sitharaman clarified that premium collection will remain in India, and foreign participation is intended to bring advanced technology, better products, and enhanced services to Indian policyholders.

She also pointed out the alignment of the bill with programs like Ayushman Bharat, which has already benefited over 120 million families, emphasizing that insurance reforms will complement public health and social welfare initiatives.

The Union Cabinet had approved the bill last Friday, and drafts were shared with all states and union territories before its passage. The amendment is expected to accelerate growth in the insurance sector, attract global investment, enhance competition, and improve consumer choice, all while safeguarding policyholder interests.

With these reforms, India’s insurance sector is poised for a major transformation, combining the benefits of foreign expertise with domestic oversight and protection, ensuring a more robust, transparent, and inclusive insurance ecosystem.