Insurance Laws (Amendment) Bill 2025

Why is this in News?

• Lok Sabha passed the Insurance Laws (Amendment) Bill, 2025.
  • Key highlight: FDI limit in insurance raised from 74% to 100%.
• Context:
  • Government push for financial sector reforms under Viksit Bharat vision.
  • Need to improve insurance penetration, capital adequacy, and product innovation.
• Political context:
  • Bill passed amid opposition protests over foreign ownership concerns.

Relevance

GS III – Economy

• Financial sector reforms and insurance penetration.
• FDI liberalisation and capital inflows.
• Role of insurance in risk management and economic stability.
• Reinsurance capacity and systemic risk reduction.

GS II – Governance

• Role and powers of regulators (IRDAI).
• Legislative reforms and regulatory oversight.
• Public sector reforms and listing of PSUs.

Basics: Insurance Sector in India

• Insurance in India governed by:
  • Insurance Act, 1938
  • LIC Act, 1956
  • IRDAI Act, 1999
• Two segments:
  • Life insurance.
  • General (non-life) insurance.
• Regulator:
  • Insurance Regulatory and Development Authority of India (IRDAI).
• Key challenge:
  • Low insurance penetration:
    • ~4% of GDP vs global average ~7%.

What is FDI in Insurance?

• FDI allows foreign entities to:
  • Invest capital.
  • Bring technology and managerial expertise.
• Evolution of FDI limits:
  • 26% (pre-2015).
  • 49% (2015).
  • 74% (2021).
  • 100% (2025 Bill).

Key Provisions of the Bill

100% FDI in Insurance Companies

• Foreign insurers can:
  • Set up wholly owned subsidiaries.
  • Operate without mandatory Indian joint-venture partners.
• Conditions:
  • All Indian laws applicable.
  • Full regulatory oversight by IRDAI.

Reinsurance Reforms

• Net Owned Fund (NOF) requirement for Foreign Reinsurance Branches (FRBs):
  • Reduced from ₹5,000 crore → ₹1,000 crore.
• Objective:
  • Attract global reinsurers.
  • Expand domestic risk-bearing capacity.
  • Reduce premium outflows abroad.

Enhanced Powers of IRDAI

• New powers:
  • Disgorgement of wrongful gains from insurers and intermediaries.
• Penalty rationalisation:
  • Maximum penalty on intermediaries raised:
    • ₹1 crore → ₹10 crore.
• Objective:
  • Strong deterrence.
  • Improved compliance and governance.

Public Sector Insurance Strengthening

• Capital infusion:
  • ₹17,450 crore into three public sector general insurers.
• Structural reforms:
  • Listing of:
    • LIC.
    • GIC Re.
    • New India Assurance.
• Objective:
  • Market discipline.
  • Transparency.
  • Operational efficiency.

Rationale Behind the Reforms

• Capital constraints in insurance sector.
• Need for:
  • Better products.
  • Deeper risk coverage.
  • Digital and actuarial expertise.
• Ease of doing business:
  • Joint ventures often complex and restrictive.
• Align India with:
  • Global best practices in insurance regulation.

Potential Benefits

• Increased capital inflow.
• Enhanced competition and innovation.
• Improved insurance penetration.
• Better reinsurance availability.
• Stronger regulatory enforcement and policyholder protection.

Concerns and Criticism

• Foreign dominance fears in a sensitive financial sector.
• Profit repatriation risks.
• Public sector insurers’ competitiveness.
• Regulatory capacity of IRDAI under expanded mandate.

Way Forward

• Phased and monitored implementation.
• Stronger consumer grievance redressal.
• Capacity building within IRDAI.
• Parallel reforms in:
  • Financial literacy.
  • Insurance awareness.
• Safeguards to protect public interest.

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