New Insurance Bill: What’s in & what’s left out?

Source: The post “New Insurance Bill: What’s in & what’s left out?” has been created, based on “New Insurance Bill: What’s in & what’s left out?” published in “Indian Express” on 15th December 2025.

UPSC Syllabus: GS Paper-2- Polity

 Context: The Union Cabinet approved the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025 on 12 December 2025. The Bill aims to revamp India’s insurance framework, modernize regulations, expand coverage, and strengthen regulatory oversight. It proposes amendments to the Insurance Act, 1938, the Life Insurance Corporation (LIC) Act, 1956, and the IRDAI Act, 1999.

Key Provisions in the Bill

1. 100% FDI in Insurance: The Bill raises the foreign direct investment (FDI) limit in Indian insurance companies from 74% to 100%. This is expected to attract long-term global capital, promote technology transfer, improve insurance penetration, and enhance underwriting, risk management, and customer service.
2. Sops for Foreign Reinsurers: The requirement for Net Owned Funds for foreign reinsurers has been reduced from ₹5,000 crore to ₹1,000 crore. This measure is intended to attract smaller and new-age reinsurers, increase competition, and strengthen reinsurance capacity in India.
3. Enhanced Powers for IRDAI: The Insurance Regulatory and Development Authority of India (IRDAI) will have the authority to disgorge wrongful gains earned by insurers or intermediaries. The Bill also introduces one-time registration for intermediaries, raises the approval threshold for equity transfers from 1% to 5%, and establishes structured procedures for rule-making and penalty enforcement to ensure transparency and accountability.
4. Greater Operational Freedom for LIC: LIC will be allowed to establish new zonal offices without prior government approval and can restructure overseas operations in accordance with foreign regulations. These measures are aimed at making LIC more agile, competitive, and globally aligned.

5.Regulatory Improvements: The Bill aims to strengthen the insurance regulatory framework by streamlining compliance processes, reducing unnecessary administrative burdens, and improving transparency and policyholder protection.

Provisions Likely Excluded or Missed

1. Composite Licence: The Bill does not include provisions for composite licences, which would allow a single insurer to operate across both life and non-life insurance segments. The absence of this reform maintains the existing segregation of life and general insurers and limits the ability to offer bundled insurance products.
2. Reduced Capital Norms and New Entrants: The Bill does not lower the minimum paid-up capital requirement of ₹100 crore for insurers and ₹200 crore for reinsurers. This omission restricts the entry of smaller, specialised, or regional insurers, thereby limiting financial inclusion and market diversity.
3. Other Missed Proposals: The Bill is also silent on earlier proposals such as allowing insurers to sell other financial products like mutual funds and loans, permitting agents to sell policies of multiple companies, and enabling large corporations to establish captive insurance subsidiaries. These omissions leave several opportunities for modernisation and market expansion unaddressed.

Significance of the Bill

1. The Bill is an important step toward modernising India’s insurance sector.
2. It facilitates foreign investment, encourages technology adoption, strengthens regulatory oversight, and provides LIC with greater operational flexibility.
3. At the same time, the exclusion of key reforms such as composite licensing, reduced capital norms, and captive insurers limits the Bill’s transformative impact on the structural issues in the insurance sector.

Way Forward

1. Introduce Composite Licences: Allow insurers to operate across both life and non-life segments to enable bundled insurance products and enhance market flexibility.
2. Reduce Capital Requirements for New Entrants: Lower minimum paid-up capital for insurers and reinsurers to encourage smaller, specialised, and regional players, promoting competition and financial inclusion.
3. Permit Diversification of Financial Services: Enable insurers to sell other financial products like mutual funds and loans to offer integrated financial solutions to customers.
4. Facilitate Captive Insurance Subsidiaries: Allow large corporations to establish captive insurance units to improve risk management and reduce dependence on external insurers.
5. Strengthen Technology Adoption and Innovation: Promote digitalisation, insurtech partnerships, and advanced risk modelling to enhance operational efficiency and customer service.
6. Enhance Policyholder Protection Measures: Continue to strengthen IRDAI’s powers to ensure transparency, timely grievance redressal, and accountability of insurers and intermediaries.

The Sabka Bima Sabki Raksha Bill, 2025 marks a significant step toward modernising India’s insurance sector by facilitating foreign investment, enhancing regulatory oversight, and granting LIC greater operational flexibility. While it strengthens transparency, competition, and policyholder protection, the exclusion of reforms like composite licensing, reduced capital norms, and captive insurance limits its transformative potential. To fully realise the sector’s growth and financial inclusion objectives, further measures are needed to encourage innovation, diversify financial offerings, and attract new entrants.

Question: Examine the key features and limitations of the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025, and suggest measures to strengthen India’s insurance sector.