In News:

The proposed Insurance Laws (Amendment) Bill, 2025 represents one of the most far-reaching reform efforts in India’s insurance sector in decades. Scheduled for introduction in Parliament, the Bill aims to modernise a regulatory framework rooted in mid-20th century legislation and address the long-standing problem of low insurance penetration, which stood at 3.7% in 2023–24, far below the global average of around 7%. The reform package seeks to enhance capital inflows, deepen market competition, and expand coverage to underserved segments.

100% FDI: Opening the Sector to Global Capital

A cornerstone of the reform is the decision to raise the Foreign Direct Investment (FDI) cap in insurance from 74% to 100%. This shift is expected to attract global insurers, many of whom have not yet entered India’s market. Greater foreign participation could bring in advanced underwriting practices, digital claims management, and sophisticated risk-assessment tools. By reducing reliance on domestic capital and improving operational efficiency, the move aims to expand product innovation and enhance consumer services. The change requires amendments to the Insurance Act, 1938, the LIC Act, 1956, and the IRDAI Act, 1999, signalling a comprehensive legislative overhaul.

Composite Licensing: Breaking Product Silos

Currently, insurers operate in strict silos—life insurers cannot sell non-life products and vice versa. The Bill proposes composite licences, allowing a single entity to offer life, health, and general insurance products under one umbrella. This integration is expected to foster holistic protection solutions, reduce duplication in distribution networks, and align insurance offerings with consumer demand for bundled financial security products.

Lower Capital Norms and New Entrants

To broaden participation, the Bill proposes reducing minimum capital requirements for insurers and reinsurers. This step could enable specialised, regional, and niche players to enter the market, particularly those targeting rural and informal sectors. Such inclusion aligns with India’s long-term goal of achieving “Insurance for All” by 2047. Simultaneously, differentiated capital norms based on business size and risk profile are expected to replace the current uniform approach, encouraging a more diverse ecosystem.

Boost to Reinsurance and Risk Management

The proposal to reduce the net owned funds requirement for foreign reinsurers aims to attract more global reinsurance firms, diversifying a segment currently dominated by a few players. Additionally, allowing large corporations to establish captive insurance entities would strengthen corporate risk management and reduce dependence on external insurers.

Ease of Doing Business in Distribution

The Bill also seeks to reform the intermediary framework through perpetual registration instead of periodic renewals and permitting agents to represent multiple insurers. These steps could expand distribution networks, increase competition, and improve consumer choice.

Conclusion

The Insurance Laws (Amendment) Bill, 2025 marks a decisive move toward global integration, regulatory flexibility, and market deepening. While higher foreign participation and relaxed norms promise capital infusion and innovation, effective oversight will be crucial to ensure consumer protection and financial stability. If implemented well, the reforms could significantly enhance insurance penetration and resilience in India’s evolving risk landscape.