Regulatory Amendments Set to Drive Higher Insurance Penetration by CareEdge Ratings
Synopsis
* The Insurance Laws (Amendment) Bill, 2025, “Sabka Bima, Sabki Raksha," was passed in the Rajya Sabha on December 17, 2025. It updates regulations for insurers, reinsurers, and intermediaries to better align the sector with India’s economic growth, capital markets, and consumer protection goals.
* It amends the Insurance Act, 1938; the Life Insurance Corporation Act, 1956; and the IRDAI Act, 1999, to permit 100% FDI, reduce net-owned fund requirements for foreign reinsurers, and strengthen IRDAI’s authority over insurers and intermediaries.
* The bill regulates commissions, establishes a Policyholders’ Education and Protection Fund, and improves procedural efficiency through higher thresholds for share transfers.
* Additionally, the Bill supports India’s long-term objective of achieving universal insurance coverage by 2047. However, certain reforms, such as composite licences, relaxed capital norms for new insurers, captive insurers, and open agent architecture, are not included in the bill and remain for future consideration.
Key Changes
FDI Limit Increases to 100% in Insurance
The amendment bill increases the FDI limit in insurance companies to 100% from the current 74% cap. Of the 60 insurers and reinsurers (24 life, 34 non-life, and two reinsurers), six smaller insurers are already operating at the 70–74% foreign ownership threshold. For these firms, the higher limit offers additional room for further capital infusion by existing foreign promoters without changing their structure, supporting solvency as capital requirements grow. For about 11 mid-sized insurers with a 49% foreign stake, the change permits gradual increases in ownership and will broaden the capital pool. The reform is likely to ease capital constraints for certain players and aid consolidation.
Lowering Entry Barriers by Reducing Net Owned Funds Requirement for Foreign Reinsurers
To strengthen India’s reinsurance capacity and enhance risk absorption within the domestic market, the bill proposes a substantial reduction in net-owned fund requirements for foreign reinsurers, from Rs 5,000 crore to Rs 1,000 crore. By easing this requirement, the bill lowers the entry barrier for international reinsurers, especially specialised players. This reform is likely to boost competition in the reinsurance market. Importantly, this net-owned fund will remain within the domestic market, supporting local insurers and increasing the availability of reinsurance capacity in India. These reinsurance players will then be able to attract larger pools or firms to support their business.
Extending Regulatory Flexibility to SEZs and IFSCs
The bill expands the central government’s authority to implement or amend provisions of the Insurance Act for insurers in Special Economic Zones (SEZs). It also extends these powers to International Financial Services Centres (IFSCs) located within SEZs. This enables the creation of customised regulatory frameworks for these zones, facilitating cross-border insurance operations and promoting the growth of IFSCs as insurance hubs.
Expanding the Definition of Insurance Intermediaries
Recognising the changing landscape of insurance distribution, the bill broadens the statutory definition of intermediaries to include Managing General Agents (MGAs). This mirrors the growing involvement of specialised entities in underwriting support, policy administration, and digital record-keeping.
Establishing Policyholders’ Education and Protection Fund: A Dedicated Safeguard
The bill proposes establishing a Policyholders’ Education and Protection Fund to be administered by IRDAI. The Fund is designed to support initiatives that enhance consumer awareness and safeguard policyholder interests. Funding sources include grants and donations from governments, regulators, and institutions; penalties collected by IRDAI and other sources, as may be prescribed by regulations. As of 30th November, 2025, NSE’s Investment Protection Fund (IPF) corpus stands at Rs 2,754 crore, while MCX's IPF corpus is around Rs 296 crore. The corpus can be used to increase awareness in India.
Strengthening IRDAI’s Supervisory Authority
The bill enhances IRDAI’s authority by allowing it to approve schemes of arrangement, override an insurer’s board when necessary, regulate agent and intermediary payments and disclosures, and expand inspection powers to intermediaries. These measures aim to improve governance.
Empowered to Oversee Corporate Restructuring
To strengthen IRDAI’s authority to approve schemes of arrangement, including mergers, demergers, and reverse mergers. This enhances regulatory oversight by safeguarding policyholders' interests during structural alterations. It offers a transparent framework for coordinated consolidation, promotes operational efficiency, and reduces risks linked to sudden ownership or management changes.
Rationalising Share Transfer Approvals
Under the current regulatory framework, any transfer of shares exceeding 1% of an insurer’s paid-up capital requires prior approval from the IRDAI. The bill suggests increasing the threshold to 5%, thereby reducing procedural hurdles in ownership transactions. This amendment is expected to streamline routine share transfers and enhance the ease of doing business for listed insurers.
Insurance Co-operatives: Enabling Grassroots Participation
The bill eliminates the mandatory minimum paid-up capital requirement of Rs 100 crore for insurance cooperative societies involved in life, general, or health insurance. This aims to promote community-based and region-specific insurance models, support financial inclusion in underserved areas, and enable smaller entities to participate without facing high capital barriers. It would allow established cooperative ecosystems in agriculture, farming, and the dairy industry, as well as product and industrial clusters, to develop end-user or purpose-specific cooperative insurance businesses. Currently, India has very few cooperative insurers, but the government plans to establish a major cooperative insurance company, utilising networks such as PACS to serve the extensive co-op sector. Although cooperative insurance models are common worldwide, their presence in India remains limited.
Conclusion
According to Sanjay Agarwal, Senior Director of CareEdge Ratings, “The Insurance Laws (Amendment) Bill, 2025, strengthens India’s insurance framework by raising the FDI limit to 100%, enhancing IRDAI’s powers, easing capital requirements, modernising intermediaries, and reinforcing policyholder protection. For insurers already operating close to the 74% foreign ownership cap, the enhanced limit provides additional headroom for incremental capital infusion by existing foreign promoters, supporting growth and solvency. Collectively, these measures are expected to improve insurance penetration, operational efficiency, and market resilience, advancing insurance for all by 2047. Additionally, with IRDAI approval, governance will be easier. However, particular areas, such as composite licensing, flexible capital norms, captive insurers, broader product distribution, investment norms, and open agent architecture, remain unaddressed. Overall, it works a fine balance between enabling regulations and overregulations.”
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