Insurance sector opened fully to foreign investment as Parliament passes amendment bill

Parliament on Wednesday passed a bill to raise foreign direct investment (FDI) in the insurance sector to 100 per cent from the existing 74 per cent, a move expected to increase insurance penetration, enhance competition, and create employment opportunities.

The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025, was cleared by the Rajya Sabha through a voice vote, a day after it was passed by the Lok Sabha. The House rejected several amendments moved by Opposition members, including a proposal to refer the bill to a parliamentary panel for further examination.

Replying to the debate, Finance Minister Nirmala Sitharaman said the amendments would allow foreign insurers to bring in more capital into the sector. “Since assuming office in 2014, our government has introduced significant reforms in the insurance sector, recognising that true national development requires broader coverage for our people, businesses, and agriculture,” she said.

Sitharaman said the opening up of the insurance sector has already helped increase insurance penetration in the country and added that there is scope for further expansion. She said the higher FDI limit would encourage more foreign companies to enter the Indian market, as many firms are unable to find joint venture partners for various reasons.

The finance minister said increased competition following the entry of more players would lead to lower insurance premiums. Addressing concerns related to employment, she said the amendments would create more job opportunities. According to her, the number of employees, agents, and micro agents increased to 88.17 lakh in 2024-25 from 30.14 lakh in 2014-15.

“Overall, the amendments are expected to further strengthen job creation, skill development and formal employment,” Sitharaman said.

She rejected the Opposition’s claim that the bill was passed in haste, stating that consultations on the proposed changes were held over nearly two years.

Responding to concerns about repatriation of profits by foreign insurers, Sitharaman said the Insurance Regulatory and Development Authority of India (IRDAI) mandates a minimum solvency ratio of 1.5, requiring insurers’ assets to be at least 1.5 times their liabilities. She said insurers are also required to make provisions for ‘incurred but not reported’ and ‘incurred but not enough reported’ liabilities.

“Profits are calculated only after providing for these liabilities. These norms provide enough safeguards for protecting the interests of policyholders,” she said.

The minister said private insurance companies are actively participating in government-backed schemes such as Jan Suraksha schemes and the Pradhan Mantri Fasal Bima Yojana (PMFBY). PMFBY is currently implemented by 13 private insurers and five public sector companies. More than 15 private insurers are participating in Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) and Pradhan Mantri Suraksha Bima Yojana (PMSBY), collectively enrolling over 20 crore people under the two schemes.

Sitharaman also addressed concerns related to the statutory status of Life Insurance Corporation of India (LIC), stating that the amendments would not dilute its position. “We are actually empowering LIC. LIC continues to enjoy the trust of our citizens and perform well to the expectations,” she said.

LIC’s total assets under management rose by 6.45 per cent to Rs 54.52 lakh crore in 2024-25, while its solvency margin improved to 2.11 from 1.98.

The bill proposes amendments to the Insurance Act, 1938, the Life Insurance Corporation Act, 1956, and the Insurance Regulatory and Development Authority Act, 1999. It also allows for the merger of a non-insurance company with an insurance firm.

According to the statement of objects and reasons, the legislation aims to accelerate the growth and development of the insurance sector and ensure better protection for policyholders. It also provides for the establishment of a Policyholders’ Education and Protection Fund.

The amendments are intended to improve ease of doing business for insurers, intermediaries, and other stakeholders, enhance transparency in regulation-making, and strengthen regulatory oversight. The bill also revises the tenure of the IRDAI Chairperson and whole-time members to five years or until they reach the age of 65 years, whichever is earlier. At present, the upper age limit for whole-time members is 62 years, while for the Chairperson it is 65 years.