Insurance Laws (Amendment) Bill 2025

Why is this in News?

• The Union Cabinet has approved the Insurance Laws (Amendment) Bill, 2025, to be introduced in Parliament.
• The Bill proposes structural reforms in India’s insurance regulatory framework, including:
  • Raising FDI limit from 74% to 100%.
  • Expanding IRDAI’s regulatory and enforcement powers.
  • Introducing new capital norms and easing business operations.
• Aimed at aligning India’s insurance sector with global best practices and boosting penetration under the Viksit Bharat 2047 vision.

Relevance

• GS III – Economy
  • Financial sector reforms
  • Insurance penetration and risk management
  • FDI liberalisation
• GS II – Governance
  • Role and powers of regulatory institutions (IRDAI)

Background: India’s Insurance Framework

• Governed by:
  • Insurance Act, 1938
  • IRDA Act, 1999
• Persistent challenges:
  • Low insurance penetration (~4% vs global ~7%).
  • Capital constraints.
  • Limited product innovation.
  • Fragmented regulation and slow approvals.

Key Provisions of the Bill

FDI Liberalisation

• FDI cap raised to 100% (from 74%).
• Objective:
  • Attract stable, long-term foreign capital.
  • Strengthen solvency and balance sheets.
  • Enable scale, technology infusion, and risk management.
• Expected impact:
  • Entry of global insurers and reinsurers.
  • Increased competition and consumer choice.

Capital & Entry Norms Reform

• Proposal to lower minimum capital requirements:
  • Currently:
    • ₹100 crore (insurers)
    • ₹200 crore (reinsurers)
• Rationale:
  • Existing norms seen as entry barriers, especially for:
    • Micro-insurance.
    • Digital-only insurers.
    • Health and specialised insurers.
• Outcome:
  • Encourages niche, region-specific, and low-cost insurance models.

More Powers to IRDAI

• IRDAI to be empowered with:
  • SEBI-like enforcement powers.
  • Authority to recover illegally earned profits.
  • Stronger penalties for violations.
• Significance:
  • Shifts regulator from procedural oversight → outcome-based supervision.
  • Enhances consumer protection and market discipline.

Simplified Regulatory Processes

• One-time registration instead of repeated approvals.
• Risk-based supervision replacing rule-based micromanagement.
• Introduction of Standard Operating Procedures (SOPs) to:
  • Improve predictability.
  • Reduce regulatory delays.
• Faster approvals for:
  • Product launches.
  • Business expansion.
  • Intermediary operations.

Reinsurance & GIFT-IFSC Boost

• Greater operational freedom for:
  • Foreign reinsurance branches.
  • IFSC-based insurance entities (LICI).
• Objective:
  • Position India as a regional reinsurance hub.
  • Reduce capital flight to overseas markets.
  • Improve domestic risk absorption capacity.

What the Bill Does Not Allow

• Composite licences rejected:
  • Life + non-life + health under a single licence not permitted.
• Reason:
  • Underwriting risks, liabilities, and actuarial models differ sharply.
  • Prevents systemic risk and regulatory arbitrage.

Captive Insurers: Deferred Reform

• Proposal to allow captive insurance companies shelved for now.
• Why controversial:
  • Parent companies could underprice risks.
  • Potential for profit shifting and solvency concerns.
• However:
  • Long-term possibility remains under tighter safeguards.

Economic & Governance Significance

Insurance as Growth Infrastructure

• Mobilises long-term savings.
• Reduces household vulnerability.
• Supports infrastructure, health, and climate risk coverage.

Market Structure Impact

• Encourages:
  • Consolidation where inefficient.
  • Competition where entry barriers fall.
• Improves product diversity:
  • Health, crop, climate, and catastrophe insurance.

Risks & Criticisms

• Over-centralisation of power in IRDAI.
• 100% FDI may:
  • Reduce domestic promoter control.
  • Lead to profit repatriation.
• Consumer protection depends on regulatory capacity, not just law.

Takeaway

• The Bill marks a shift from protectionist regulation to competitive, capital-driven insurance governance.
• Success depends on:
  • Strong IRDAI enforcement.
  • Prudential safeguards.
  • Consumer-centric supervision.

Conclusion

The Insurance Laws (Amendment) Bill, 2025 seeks to transform India’s insurance sector into a capital-rich, competitive, and innovation-driven market, making insurance a core pillar of economic resilience under Viksit Bharat 2047.

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