Insurance sector reforms: ‘Transformative‘ bill likely to be moved during monsoon session of Parliament

Proposed amendments are expected to lay down the framework for composite licenses, allowing insurers to offer multiple categories of insurance — life, health and general — under a single license

Government is likely to introduce a bill during the monsoon session of Parliament to bring ‘transformative’ reforms to the insurance sector, including raising Foreign Direct Investment (FDI) limit to 100 per cent.

“The bill is getting ready. Post all the consultations and approval from the Cabinet, it may be introduced during the monsoon session,” a senior Government official said. The bill intends to fulfil the key FY26 Budget announcement of raising FDI limit from 74 to 100 per cent in the insurance sector. This enhanced limit will be available to companies which invest the entire premium in India. The current guardrails and conditionalities associated with foreign investment will be reviewed and simplified.

Framework of the bill is based on a proposal mooted by the Financial Services Department in November last year, when it invited comments on the proposed amendments in three laws – Insurance Act 1928, Life Insurance Corporation Act 1956 and Insurance Regulatory and Development Authority Act, 1999. It was said that amendments are proposed to ensure “accessibility and affordability of insurance to citizens, foster expansion and development of the insurance industry and streamline business processes.”

Proposed amendments are expected to lay down the framework for composite licenses, allowing insurers to offer multiple categories of insurance — life, health and general — under a single license. This is expected to enhance operational flexibility, streamline regulatory processes and foster innovation. This is one key initiative for enhancing insurance penetration to achieve goal of ‘Insurance for All by 2047.’

The bill is also expected to empower IRDAI to specify lower entry capital (not less than ₹50 crore) for under-served segments on special case basis. At the same time, requirement of Net Owned Funds for foreign re-insurers is proposed to be lowered to ₹1000 crore from ₹5000 crore.

Talking about the proposal to hike FDI limit, Financial Services Department told a Parliamentary panel that the objective of such a move includes unlocking the full potential of the Indian insurance sector, which is projected to grow at 7.1 per cent annually over the next five years, outpacing global and emerging market growth. “Removing the FDI cap will also attract stable and sustained foreign investment, increase competition, facilitate technology transfer, and improve insurance penetration across India,” it said.

Further, it said that India’s FDI norms, duly aligned with global best practices, will position the country as an attractive destination for foreign investors. Countries like Canada, Brazil, Australia, and China permit 100 per cent FDI in their insurance sectors.

“The provisions of the Indian Insurance Companies (Foreign Investment) Rules, 2015, which prescribe conditions related to appointment of Key Management Persons, composition of Board, dividend repatriation etc. will be reviewed so as to create a congenial atmosphere for bringing more FDI into the insurance sector, thereby boosting its growth and to enable inflow of best talent and knowledge transfer to India,” the Department said.

The government hopes that higher FDI limit means greater foreign participation which will lead to more players in the market, enhancing competition, better products, improved customer service, and more affordable premiums, ultimately improving insurance penetration and density thereby reducing the protection gap.

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Published on April 13, 2025