In a transformative move for India's financial landscape, the government is poised to introduce a comprehensive reform package for the insurance sector. The proposed Insurance Laws (Amendment) Bill, 2025 promises to be the most significant reset for the industry in decades, aiming to unlock growth, attract global capital, and expand coverage across the nation.
A Leap Towards Full Foreign Ownership
The cornerstone of the reform is the decision to increase the Foreign Direct Investment (FDI) limit in insurance from 74% to 100%. This landmark announcement was made by Finance Minister Nirmala Sitharaman on February 1, 2025. The change paves the way for global insurance behemoths, nearly 20 of the world's top 25 of which are not yet present in India, to enter the market independently or acquire their Indian joint venture partners.
To implement this higher FDI cap, the government will amend three key legislations: the Insurance Act, 1938, the Life Insurance Corporation Act, 1956, and the Insurance Regulatory and Development Authority Act, 1999. Sitharaman has indicated the draft Bill will be tabled in Parliament shortly, with expectations high for its approval in the ongoing session.
The influx of foreign capital is critical for an industry that needs funds to expand its reach into India's vast underserved markets, improve product offerings, and upgrade technological services. This move is seen as a decisive step to boost India's low insurance penetration, which stood at 3.7% in 2023–24, compared to a global average of around 7%.
Key Structural Reforms in the Pipeline
Beyond FDI, the Bill introduces several structural changes designed to modernise the sector.
Composite Licensing: A revolutionary shift, the Bill proposes to allow composite licences, enabling a single insurance company to sell both life and non-life products. Currently, insurers are rigidly compartmentalised. This change will allow for integrated solutions, like bundled health, life, and property coverage, creating a more holistic and customer-friendly ecosystem.
Eased Entry Norms: The reform package significantly lowers barriers to entry. The net owned funds requirement for foreign reinsurers is expected to be slashed from Rs 5,000 crore to Rs 500 crore. Similarly, minimum capital requirements for insurers and reinsurers may be reduced from the current Rs 100 crore and Rs 200 crore, respectively. This aims to attract specialised, regional, and new-age players.
One-Time Registration & Multi-Seller Agents: To reduce regulatory friction, a perpetual, one-time registration system for intermediaries is proposed, replacing the current three-year renewal cycle. Furthermore, individual agents will likely be allowed to sell policies from multiple insurers, breaking the current restriction of one life and one general insurer partner. This will expand distribution and enhance customer choice.
Captive Insurance Entities: The Bill is expected to permit large corporations to establish their own captive insurance entities. This will allow them to manage internal risks more efficiently and gain greater control over underwriting and claims processes.
Industry Outlook and Expected Impact
Industry leaders have welcomed the proposed reforms, highlighting their potential to reshape the market. Hanut Mehta, CEO of BimaPay Finsure, pointed out that affordability remains India's biggest barrier to insurance adoption. "With higher FDI, insurers will be able to expand products, improve underwriting, and strengthen distribution," he said.
Balachander Shekhar, Co-founder of RenewBuy, noted that the combination of full foreign ownership, composite licences, and rationalised capital norms opens doors for new participants to serve underserved markets.
The reforms are collectively expected to spur intense competition, drive product innovation, and transfer global best practices in underwriting, digital claims, and risk assessment to India. By fostering a more diverse, competitive, and technologically robust insurance ecosystem, the government aims to lay the groundwork for its vision of "insurance for all by 2047." As one industry CEO optimistically projected, these changes could lead to India having 1,000 insurers in the next decade, a dramatic increase from the current landscape.
