The Lok Sabha has passed the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025, promising insurance and protection for all. The reforms are aimed at modernising the sector but the Bill omits an earlier proposal on composite licensing, explains Sidharrth Shankar
l FDI cap raised in insurance firms
The Bill raises the foreign direct investment (FDI) cap in insurance companies from 74% to 100%, fully liberalising foreign ownership, subject to conditions as may be prescribed. Interestingly, in anticipation of the sector’s liberalisation, the finance ministry had issued draft amendments on August 29 to the Indian Insurance Companies (Foreign Investment) Rules, 2015.
The draft rules signal proposed relaxations for insurers with foreign investment. These relaxations include: Residency of directors: A majority of directors and key management persons (KMPs) are no longer required to be resident Indian citizens.
Independent directors: Obligation for insurers with more than 49% foreign investment to maintain at least 50% of their board of directors as independent directors is proposed to be omitted.
Higher solvency norms: The requirement for insurers with more than 49% foreign investment to maintain 50% of net profit in the general reserve when dividends are paid for a financial year and solvency margin is less than 1.2 times of the control level of solvency is also proposed to be omitted.
l Insurance business and amalgamation with non-insurance
The Bill introduces a new definition of “insurance business” covering the business of effecting insurance contracts and any other form of contract notified by the central government in consultation with the Insurance Regulatory and Development Authority of India (IRDAI). While the Bill does not list additional permissible activities, it gives enabling powers to the Centre and IRDAI to introduce new categories of business without amending the Insurance Act.
The Bill also allows the transfer or amalgamation of insurance or non-insurance business of any company into the insurance business of an insurer, subject to IRDAI approval and compliance with the Insurance Act. This marks a shift from the current law, which only permits amalgamations between insurers of the same class. However, amalgamation insurance and non-insurance firms would be feasible only if insurance companies can undertake other business.
l Intermediaries and enhanced IRDAI powers
The definition of insurance intermediaries is expanded to include managing general agents. The Bill introduces perpetual registration for intermediaries (subject to suspension or cancellation by IRDAI), though references to renewal applications create some ambiguity and may require clarification. IRDAI is also empowered to cancel registration where an intermediary’s parent entity is based in a country barred from carrying on insurance intermediary business.
IRDAI is explicitly empowered to regulate limits, disclosure of commission, remuneration or reward payable to agents and intermediaries, reinforcing the regulator’s oversight in the interest of policyholders.
The Bill enhances the regulatory powers of IRDAI by permitting it, in specified circumstances, to frame new regulations and amend existing ones without publishing draft versions, including if required in public interest or where the subject matter relates to the authority’s internal functioning.
l Other reforms introduced in Bill
The Bill reduces the net owned fund requirement for foreign re-insurance branches, including Lloyd’s and its members, from `5,000 crore (~$550.26 million) to `1,000 crore (~$110.05 million), aligning them with International Financial Services Centre-based reinsurers. It also clarifies that no entity established outside India may carry on insurance business in India, other than re-insurance.
The Bill introduces detailed statutory obligations for maintaining and processing policyholder information. Insurers must maintain records of policies and claims, including prescribed identification details
such as Aadhaar, PAN and other unique identifiers.
Also, currently a managing director or officer of an insurer carrying on life insurance business is prohibited from holding a similar position in any other life insurer, banking company, or investment company. The Bill amends this restriction, prohibiting any director or officer from holding a position in another insurer if it carries on the same class of insurance business, or in a banking or investment company.
l What has been missed in the Bill?
The Bill marks a significant step towards liberalising and modernising India’s insurance sector by enabling full FDI liberalisation, strengthening governance norms and enhancing enforcement mechanisms. But it doesn’t introduce composite licensing, which had been proposed earlier. It also retains the existing restriction preventing agents from representing more than one insurer per class, does not introduce special foreign investment limits for co-operative insurers, and omits the earlier proposal to reduce minimum paid-up equity capital to `50 crore (~$5.49 million) for insurers serving underserved or special segments.
The author is Partner, JSA-Advocates & Solicitors