The Union Cabinet on Friday approved a bill to raise the FDI limit in the insurance sector from 74% to 100% to unlock the sector’s full potential by attracting more stable foreign capital and technology, eliminating the need for mandatory Indian joint venture partners, and ultimately boosting national insurance penetration.
The Insurance Laws (Amendment) Bill, 2025, will likely be introduced in Parliament on Monday for approval.
Bill to Simplify Entry
The Bill will also relax the current guardrails and conditionalities on the repatriation of dividends and key management personnel for foreign-owned insurance firms to further ease the doing business.
However, at least one among the Chairman, Managing Director, or CEO must be an Indian citizen as per the approved Bill, sources said. Merger of a non-insurance company with an insurance company will also now be possible while a dedicated policyholder fund will also be created, sources said.
Sources said the Bill does not include the provision for a composite unified licence. The reduction in net worth requirements for small insurance companies has also not been approved.
The Indian insurance sector is projected to grow at over 7% annually in the next five years, outpacing the corresponding global and emerging market economy growth rates, according to the government.
Even though the current 74% FDI cap was under-utilized, the government was of the view that the 100% FDI provision is an enabling provision intended to liberalize the sector and facilitate growth.
The full opening of the sector will eliminate the need for foreign investors to seek Indian partners for the remaining 26% stake. This will ease the process of setting up operations in India and potentially increase the number of insurers in the country.
It will help attract stable and sustained foreign investment, increase competition, and facilitate technology transfer, officials said, adding that the ultimate goal is to improve insurance penetration in the country.
Low Utilisation of Existing Cap
Even though FDI up to 74% is currently allowed, the FDI part of the capital employed in the life and general insurance sector by the private insurance companies has not been fully utilised by most companies. Only four out of 19 life insurance companies have utilised the full limit of 74% while none of the 20 general insurance firms have touched that limit.
In aggregate, foreign investors held 47.82% equity share capital of life insurers as of December 31, 2024. It was 29.46% in the case of non-life insurers.
“Even when FDI moved from 51% to 74%, penetration didn’t change meaningfully — and it didn’t bring a surge of foreign capital either,” Kamlesh Rao, MD & CEO, Aditya Birla Sun Life Insurance, points out.
He noted that Indian insurers have built their growth models over decades on the strength of deeply entrenched distribution ecosystems — agency networks, bancassurance partnerships that contribute 50% or more for many players, and long-standing institutional relationships.
Even after the Budget 2025 announcement on 100% FDI and with the Amendment Bill nearing passage, several global insurers preferred entering India through partnerships with domestic groups. Last month, Canadian major Manulife chose Mahindra & Mahindra Ltd (M&M) for a ₹7,200-crore life insurance venture with a 50:50 shareholding. In July, Jio Financial Services and Allianz Group announced a 50:50 reinsurance joint venture and signed a non-binding pact to form equally owned general and life insurance ventures. Domestic brokerage Angel One has also outlined plans to invest at least ₹400 crore in a 74:26 life insurance JV with Singapore’s LivWell Holding Company.