Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025

Source: The post “Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025” has been created, based on “Explained | New Insurance Bill: What’s in & what’s left out?” published in “Indian Express” on 17th December 2025.

UPSC Syllabus: GS Paper-2- Polity and Governance 

Context: The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025 seeks to modernise India’s insurance framework by amending the Insurance Act, 1938, the LIC Act, 1956, and the IRDAI Act, 1999. The Bill aims to expand insurance coverage, attract investment, and strengthen regulatory oversight, but it also leaves out several long-pending structural reforms.

Key Provisions of the Bill

1. Increase in FDI Limit to 100%: The Bill raises the Foreign Direct Investment limit in insurance companies from 74% to 100%. This is expected to attract long-term foreign capital, facilitate technology transfer, enhance competition, and support the goal of “Insurance for All by 2047.” It will also bring global best practices in underwriting, risk assessment, and claims management.
2. Incentives for Foreign Reinsurers: The Bill reduces the Net Owned Funds requirement for foreign reinsurers from ₹5,000 crore to ₹1,000 crore. This measure is intended to attract more global and niche reinsurers, deepen domestic reinsurance capacity, and reduce excessive dependence on the public sector reinsurer, GIC Re.
3. Enhanced Powers for IRDAI: The Insurance Regulatory and Development Authority of India (IRDAI) is granted stronger enforcement powers, including the authority to disgorge wrongful gains made by insurers or intermediaries. This aligns IRDAI’s regulatory strength with that of SEBI and improves policyholder protection.
4. Simplification of Regulatory Procedures: The Bill introduces a one-time registration system for insurance intermediaries, reducing repetitive approvals and compliance burden. It also raises the threshold for IRDAI approval for transfer of paid-up equity capital from 1% to 5%, easing routine business transactions.
5. Improved Regulatory Governance: A formal Standard Operating Procedure for regulation-making is proposed to be incorporated into the Act. Clear criteria for penalties are introduced, improving transparency, predictability, and consistency in regulatory enforcement.
6. Greater Operational Autonomy for LIC: The Bill empowers LIC to open new zonal offices without prior government approval and allows restructuring of overseas operations in line with host country regulations. This enhances LIC’s administrative efficiency, competitiveness, and global operational flexibility.

Limitations

1. Absence of Composite Licensing: The Bill does not provide for composite licences that would allow insurers to operate in both life and non-life segments. This maintains rigid segmentation, limits product bundling, and prevents insurers from offering integrated insurance solutions under one roof.
2. No Reduction in Capital Requirements: The Bill retains the existing high minimum paid-up capital requirements for insurers and reinsurers. This discourages small, regional, and niche players, especially those targeting rural areas, micro-insurance, gig workers, and low-income households.
3. No Push for New Entrants and Innovation: By not lowering entry barriers, the Bill misses an opportunity to encourage specialised insurers such as health-only, agriculture-focused, or micro-insurance firms that could improve insurance penetration and financial inclusion.
4. Exclusion of Multi-Product Distribution: Proposals allowing insurers to distribute other financial products like mutual funds, loans, and credit cards have been dropped. This limits integrated financial service delivery and alternative revenue streams for insurers.
5. Restrictions on Insurance Agents Remain: The Bill does not allow individual insurance agents to sell products of multiple insurers. This continues to restrict consumer choice and agent flexibility.
6. No Provision for Captive Insurance Companies: The Bill is silent on permitting large corporations to set up captive insurance entities. This limits advanced risk-management options for Indian corporates and keeps India behind global practices.

Way Forward

1. Introduction of Composite Licensing: The government should consider allowing composite licences to enable insurers to offer life, health, and general insurance products under one umbrella. This would promote integrated insurance solutions, enhance consumer convenience, and align India’s insurance framework with global best practices.

2. Rationalisation of Capital Requirements: Minimum paid-up capital norms for insurers and reinsurers should be reviewed and rationalised to encourage the entry of small, regional, and niche players. Lower entry barriers would help expand insurance coverage in underserved and rural areas.
3. Promotion of Specialised and Inclusive Insurers: Policy support should be extended to specialised insurers such as health-only, agriculture-focused, and micro-insurance companies. This would help address the protection gaps faced by informal workers, gig economy participants, and low-income households.
4. Enabling Captive Insurance Companies: The legal framework should permit large corporations to establish captive insurance entities. This would modernise India’s risk-management ecosystem, reduce dependence on overseas captives, and retain insurance capital within the country.
5. Greater Flexibility for Insurance Distribution: Insurance agents should be allowed to sell policies of multiple insurers to improve competition, expand consumer choice, and enhance last-mile insurance penetration.
6. Integration with Broader Financial Services: Insurers may be permitted to distribute select financial products such as mutual funds and pension products under a regulated framework. This would promote integrated financial solutions and improve financial inclusion.
7. Strengthening Consumer Protection and Awareness: Alongside regulatory reforms, greater emphasis should be placed on financial literacy, digital grievance redressal, and faster claims settlement to build trust and increase insurance adoption.

8. Phased and Consultative Reform Approach: Future amendments should be introduced in a phased manner after wider stakeholder consultations to balance industry growth, consumer protection, and systemic stability.

Conclusion: The Sabka Bima Sabki Raksha Bill, 2025 marks an important step towards liberalisation and regulatory strengthening of India’s insurance sector, particularly through 100% FDI and enhanced IRDAI powers. However, the exclusion of composite licences, capital norm rationalisation, and captive insurance reflects a cautious reform approach. To truly deepen insurance penetration and promote inclusive growth, these structural reforms may need to be revisited in future amendments.

Question: “The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025 seeks to modernise India’s insurance sector but stops short of key structural reforms.” Discuss the major provisions of the Bill and critically examine its limitations in achieving inclusive insurance growth.