[Answered] Examine the hits and misses of the Sabka Bima Sabki Raksha Bill, 2025 in reforming the Indian insurance sector. Critically analyze its potential impact on policyholder protection and market competition.

Introduction

“India’s insurance penetration remains around 4.2% of GDP (IRDAI, 2023), far below global averages. The Sabka Bima Sabki Raksha Bill, 2025 seeks structural reform, but reveals both ambition and constraint.”

Hits: Strengthening Capital, Regulation and Policyholder Protection

1. The Sabka Bima Sabki Raksha Bill, 2025 marks the most consequential reform of India’s insurance architecture since the IRDAI Act, 1999. Its most transformative provision is the enhancement of FDI limits to 100%, aligning India with global insurance hubs such as Singapore and the UK.
2. According to Swiss Re’s Sigma Report (2023), emerging markets require sustained foreign capital to expand insurance density, particularly in health and catastrophe coverage.
3. Full FDI is likely to strengthen insurers’ balance sheets, introduce advanced actuarial models, and accelerate digital claims processing, thereby improving consumer experience.
4. A second major reform lies in strengthening the enforcement powers of Insurance Regulatory and Development Authority of India. Granting IRDAI disgorgement powers, akin to those exercised by Securities and Exchange Board of India, enhances regulatory deterrence and protects policyholders from mis-selling, fraud, and unjust enrichment.
5. The introduction of structured Standard Operating Procedures (SOPs) for regulation-making further improves transparency, predictability, and regulatory legitimacy.
6. The Bill also rationalises compliance through one-time registration for intermediaries and raises the threshold for regulatory approval of equity transfers from 1% to 5%. These measures reduce transaction costs, encourage ease of doing business, and align with the OECD’s recommendations on proportional regulation.
7. Further, reducing the Net Owned Funds requirement for foreign reinsurers from ₹5,000 crore to ₹1,000 crore can deepen India’s reinsurance market, currently dominated by General Insurance Corporation of India. Greater reinsurance capacity improves systemic resilience against climate-induced disasters, a growing concern flagged by the IPCC Sixth Assessment Report.

Misses: Structural Rigidities and Incomplete Market Deepening

1. Despite these gains, the Bill stops short of addressing long-standing structural inefficiencies. The most significant omission is the absence of composite licensing, which continues the rigid separation between life and non-life insurance. Internationally, composite insurers dominate markets such as Australia and Germany, offering bundled products and benefiting from economies of scope.
2. In India, this siloed structure limits innovation, restricts cross-risk pooling, and increases distribution costs for consumers.
3. Another missed opportunity is the failure to lower minimum capital requirements for new insurers. The current ₹100–200 crore thresholds discourage niche, regional, and micro-insurance players.
4. Evidence from Kenya’s micro-insurance reforms shows that lighter capital norms for specialised insurers significantly expanded coverage among informal workers and rural households. India’s insurance density — about $91 compared to a global average of $890 (Swiss Re) — suggests the need for such targeted entrants.
5. The Bill is also silent on captive insurance companies, a globally accepted risk-management tool used by multinational corporations. Their exclusion limits India’s ability to develop a sophisticated corporate risk ecosystem and retain premium outflows offshore.
6. Additionally, restrictions on multi-company agency distribution and cross-selling of financial products remain, constraining competition and consumer choice, particularly in underpenetrated regions.

Impact on Policyholders and Competition

1. While enhanced regulatory powers and capital inflows strengthen policyholder protection, the limited structural reform may blunt competitive intensity.
2. Market concentration risks persist, potentially favouring large incumbents over innovation-driven challengers.
3. True consumer welfare requires not only stronger regulation but also contestable markets, product diversity, and last-mile outreach.

Conclusion

Regulation must enable markets, not entrench power. IRDAI data and Swiss Re surveys suggest deeper competition is essential for universal insurance access.