The Insurance Amendment Bill passed by Parliament on Wednesday marks the most substantive overhaul of India’s insurance framework in years, though there are a few notable omissions. The 100% foreign ownership should unlock fresh capital, strengthen insurers’ balance sheets, and enhance the sector’s ability to underwrite larger and more complex risks while expanding reach in underpenetrated segments. Stronger capitalisation will also enable insurers to invest meaningfully in advanced underwriting capabilities and digital infrastructure. Equally important are the governance-related provisions. Measures such as capping commissions and empowering the regulator to order disgorgement of wrongful gains strengthen oversight and promote more orderly conduct. Mere monetary penalties, as imposed earlier, were often treated as a cost of doing business. The new framework signals a tougher stance on mis-selling and regulatory breaches.
‘Agent Economy’ Evolution
A major structural shift is the formal introduction of managing general agents (MGAs) as a recognised class of insurance intermediaries. Until now, intermediaries were largely restricted to distribution. The new framework allows MGAs to undertake underwriting and distribution, aligning India with developed insurance markets. This is expected to drive innovation, niche products, and operational efficiency across the sector. The Bill also provides for one-time registration of intermediaries, doing away with licence renewals every three years. To its credit, the Bill places consumer protection at the centre of insurance regulation—an urgent necessity in a market plagued by mis-selling, opaque commissions, and weak trust. In that sense, a transition has been made to put customers at the centre of attention.
Omission of Composite Licenses
This was important as trust deficit, compounded by low awareness of insurance products, is reflected in India’s persistently low insurance penetration. Despite the foreign direct investment cap being raised from 49% in 2015 to 74% in 2021, overall penetration has risen only marginally—from 3.3% in FY15 to 3.7% in FY24—well below the global average of around 7%. The market remains heavily skewed towards life insurance, with penetration at 2.8%, while non-life insurance languishes at just about 1%. A survey by consumer advocacy group ConsumerFirst underscored the challenge: 68% of respondents said they had lost faith in insurance products, while 42% were hesitant to purchase new policies.
But India’s insurance challenge is not simply about distribution reach; it is also about cost structures, capital efficiency, and product simplicity. This is where the absence of a composite licence looms large. Allowing insurers to offer both life and general insurance under a single licence could have materially lowered operating costs, enabled bundled products, and improved cross-selling—especially through the very distribution channels the Bill now seeks to energise. In a market as price-sensitive as India’s, these efficiencies matter. Globally, composite structures operate under strong regulatory safeguards without compromising stability. India’s insistence on maintaining rigid silos increasingly appears out of step with its own ambition to rapidly raise penetration.
Moreover, while distribution reforms are necessary, they are not sufficient. Insurance products remain complex and poorly aligned with the needs of low- and middle-income households. Standardised, low-ticket policies; flexible underwriting for informal workers; and faster, more transparent claims settlement are essential to building trust. Regulatory empowerment must translate into regulatory encouragement for such innovation—not just tighter oversight. In that sense, the Insurance Bill is a strong foundation—but not yet the finished structure. Without measures such as composite licensing and a sharper push on product reform, distribution gains alone may not be enough to deliver the step change India’s insurance sector urgently needs.