Insurance Amendment Act: Decoding the 2025 Reform

Policy Update
Sruti Halder

Background

The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025 represents the most sweeping overhaul of India’s insurance regulatory architecture since the sector was opened to private participation in 2000. Introduced in the Lok Sabha on December 16, 2025, passed by both Houses of Parliament within two days, and granted Presidential assent on December 20, 2025, the Act amends three foundational statutes: the Insurance Act, 1938, the Life Insurance Corporation Act, 1956, and the Insurance Regulatory and Development Authority of India (IRDAI) Act, 1999. The Central Government subsequently notified February 5, 2026, as the date of commencement for most provisions.

The rationale for the reform stems from a persistent structural problem: India’s insurance penetration, despite two and a half decades of liberalization, remains stuck between 3.5 and 4 percent of GDP, far below the global average. The government’s stated objective, repeatedly articulated by the Ministry of Finance, is to achieve “Insurance for All by 2047,” coinciding with the centenary of independence. To this end, the Act pursues capital augmentation, deeper market competition, improved ease of doing business, and stronger consumer protection simultaneously.

The single most consequential provision is the increase in the Foreign Direct Investment (FDI) ceiling in Indian insurance companies from 74 percent to 100 percent of paid-up equity capital, announced first in the Union Budget 2025-26 speech and now codified in law. This built upon a gradual liberalization trajectory that the table below summarizes.

Source: PRS Legislative Research, Bill Summary, 2025; Ministry of Finance, Union Budget speeches 2021 and 2025.

Beyond FDI, the Act’s key provisions include lowering the net-owned fund requirement for foreign reinsurance branches from ₹5,000 crore to ₹1,000 crore, raising the maximum penalty under the Insurance Act from ₹1 crore to ₹10 crore with codified aggravating and mitigating factors, enabling one-time composite licensing and suspension (rather than outright cancellation) of intermediary licenses, permitting mergers of insurers with non-insurance entities subject to IRDAI approval, removing the ₹100 crore minimum capital requirement for insurance co-operative societies, and extending regulatory flexibility to insurers and intermediaries operating in Special Economic Zones and International Financial Services Centers such as GIFT (Gujarat International Finance Tec-City).

It also creates a statutory Policyholders’ Education and Protection Fund and mandates that data collection by insurers align with the Digital Personal Data Protection Act, 2023. Target beneficiaries span policyholders seeking better products and grievance redress, domestic insurers seeking capital, foreign investors seeking unrestricted entry, and intermediaries such as brokers and the newly recognized Managing General Agents.

Functioning

Operationally, the Act functions as an enabling legislative shell; its effect depends on subordinate rulemaking by the Ministry of Finance and IRDAI. Following enactment, the Ministry notified the Indian Insurance Companies (Foreign Investment) Amendment Rules, 2025 on December 30, 2025, removing the requirement that a majority of directors and key managerial personnel be resident Indian citizens (retaining only the condition that one among the CEO, MD, or Chairperson be a resident Indian), and easing the mandatory-independent-director threshold for majority foreign-owned insurers.

The Department for Promotion of Industry and Internal Trade subsequently issued a corresponding Press Note revising the FDI policy, and the Foreign Exchange Management (Non-Debt Instruments) rules were amended on May 2, 2026, to align FEMA with the new ceiling.

Institutionally, IRDAI remains the primary regulator, now armed with expanded powers to inspect and investigate intermediaries, disgorge wrongful gains, supersede an insurer’s board and appoint an administrator, and issue standard operating procedures mandating consultation before framing regulations. The Policyholders’ Education and Protection Fund is to be administered by IRDAI and financed through government grants, penalty proceeds, and other prescribed contributions broadly modelled on the SEBI Investor Protection Fund.

Implementation has proceeded in a phased sequence: legislative enactment, FDI rule amendment, FEMA alignment, and pending amendments to IRDAI’s 2024 Registration and Capital Structure Regulations and Actuarial, Finance and Investment Functions Regulations. Industry commentary notes that full operationalization, particularly the merger and amalgamation framework and revised solvency norms, will take several more quarters, and that public sector employee unions and insurance agents’ associations have voiced opposition, citing concerns about corporatization and job security.

Performance

Assessing performance requires examining insurance-sector indicators over the past three to four years, since the amendment builds on incremental FDI liberalization rather than a single discrete scheme. IRDAI’s Annual Reports for FY 2023-24 and FY 2024-25 provide the most authoritative data points.

Source: IRDAI Annual Report 2023-24; IRDAI Annual Report 2024-25; PIB press release, DFS 

India’s life insurance penetration declined for a third consecutive year to 2.7 percent in 2024-25 from 2.8 percent the prior year, even as life insurers’ premium collections rose 7 percent to ₹8.86 lakh crore. In FY 2024-25, the sector issued 41.84 crore policies, collected premiums of ₹11.93 lakh crore, paid claims of ₹8.36 lakh crore, and held assets under management of ₹74.44 lakh crore as of March 31, 2025. India remained the tenth-largest insurance market globally by nominal premium in 2024, holding a 1.8 percent global market share, according to the Swiss Re Sigma report cited by the Department of Financial Services.

These figures underline the very problem the 2025 Act seeks to address: premium volumes and density are rising steadily, yet penetration relative to GDP has stagnated or declined, indicating that insurance growth is not outpacing broader economic growth. The government frames the FDI liberalization and reinsurer capital-easing provisions as direct responses to this stagnation.

Impact

Since the Act only came into force in February 2026, robust post-implementation impact data is not yet available, and evaluation must rely on early market response and comparison with the 2021 precedent. When the FDI ceiling was raised from 49 to 74 percent in 2021, the announcement-to-implementation cycle took roughly six and a half months, and subsequent years saw new capital commitments though not a reversal of the penetration decline. 

Legal and industry analyses widely characterize the 2025 reforms as the most significant structural change since 2000, expected to bring capital augmentation, technology transfer, and improved competition, but caution that meaningful gains in penetration typically show up in the data only with a multi-year lag. 

The DFS Secretary’s assessment in early 2026 noted that a new reinsurer had already registered in GIFT City following the reforms, signaling early investor interest, particularly around the reinsurance and IFSC ecosystem, even before penetration metrics could reflect the change. Whether foreign capital actually deepens retail insurance access as opposed to concentrating in reinsurance, corporate lines, and metro markets remains the central open question that future IRDAI and Economic Survey data will need to answer.

Emerging Issues

Several concerns have emerged from stakeholder consultations and expert commentary. 

• First, full foreign ownership without an Indian promoter may weaken the historical rationale for local partnership requirements, raising governance and control questions despite retained safeguards such as a resident CEO/MD/Chairperson requirement.
• Second, opposition parties and employee unions have flagged apprehensions about “corporatization” of the sector and its implications for public sector insurers and agent livelihoods.
• Third, the effectiveness of the newly empowered Policyholders’ Education and Protection Fund depends on adequate, timely funding and independent administration areas where implementation details are still evolving. Fourth, the alignment of insurer data practices with the Digital Personal Data Protection Act, 2023 introduces compliance complexity, particularly for foreign entities managing cross-border data flows. 
• Fourth, an emerging concern is that public-sector unions and opposition parties view the Act’s 100%-FDI liberalization as backdoor corporatization: foreign-owned insurers optimizing for efficiency may cut agent networks and jobs through automation, repatriate profits abroad rather than reinvest domestically, dilute domestic decision-making control, and prioritize high-margin urban business over rural and low-income coverage. This concern carries added weight since Parliament’s own Standing Committee on Finance independently flagged these same risks and called for safeguards before the FDI cap was raised, suggesting the issue is not confined to opposition rhetoric alone.
• Finally, the persistent decline in life insurance penetration despite rising premiums suggests that capital-side reforms alone may not resolve demand-side barriers such as affordability, awareness, and last-mile distribution in rural and semi-urban India.

Way Forward

To convert legislative liberalization into tangible penetration gains, several complementary measures merit attention.

• Expedite pending subordinate regulations: IRDAI should expedite the pending subordinate regulations, particularly the amended Registration, Capital Structure, and Actuarial Functions regulations, to remove implementation uncertainty for prospective investors.
• Operationalize the Policyholders’ Fund: The Policyholders’ Education and Protection Fund should be operationalized with a transparent funding formula and measurable literacy targets, given the correlation between low awareness and stagnant penetration.
• Strengthen demand-side interventions: Complementary measures strengthening Ayushman Bharat-linked health coverage, expanding bancassurance in underserved districts, scaling IRDAI’s Bima Vahak initiative (a women-led rural distribution and awareness channel aimed at reaching every Gram Panchayat), and incentivizing micro-insurance products would help ensure that foreign capital inflows translate into last-mile coverage rather than concentrating in urban and corporate segments.
• Improve data granularity: Regular, granular state-wise and sector-wise penetration data, ideally published quarterly rather than annually, would allow policymakers and researchers to track whether the reform is closing regional and rural-urban insurance gaps.
• Sustain regulatory oversight: Continued parliamentary and CAG oversight of IRDAI’s expanded enforcement powers, including disgorgement and board-supersession authority, will be important to ensure that expanded regulatory muscle is exercised proportionately and transparently as the sector opens further to global capital.
  

References 

Insurance Regulatory and Development Authority of India. (2024). IRDAI Annual Report 2023-24. IRDAI. https://www.business-standard.com/finance/insurance/irdai-annual-report-2023-24-insurance-penetration-decline-124122500470_1.html

Insurance Regulatory and Development Authority of India. (2025). IRDAI Annual Report 2024-25. IRDAI. https://lifeinscouncil.org/component/IRDAI%20Annual%20Report%202024-25.pdf

Press Information Bureau, Ministry of Finance. (2025). The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025 passed by Parliament; allows up to 100% FDI in insurance companies. PIB. https://www.pib.gov.in/PressReleasePage.aspx?PRID=2206011&reg=3&lang=1

Press Information Bureau, Department of Financial Services. (2026). DFS Secretary highlights India’s insurance growth at IFSCA-IRDAI-GIFT City Global Reinsurance Summit. PIB. https://www.pib.gov.in/PressReleasePage.aspx?PRID=2216048&reg=3&lang=1

Department of Financial Services, Ministry of Finance. (2026). The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025 — Notification of effective date. Government of India. https://www.financialservices.gov.in/beta/en/actsandrules/sabka-bima-sabki-raksha-amendment-insurance-laws-act-2025

PRS Legislative Research. (2025). The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025 — Bill Summary. PRS India. https://prsindia.org/billtrack/the-sabka-bima-sabki-raksha-amendment-of-insurance-laws-bill-2025

PRS Legislative Research. (2025). Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025 — Full text. PRS India. https://prsindia.org/files/bills_acts/acts_parliament/2025/Sabka_Bima_Sabki_Raksha_(Amendment_of_Insurance_Laws)_Act_2025.pdf

Deccan Herald. (2025, December 16). Lok Sabha passes bill to raise FDI limit in insurance sector to 100%. https://www.deccanherald.com/amp/story/india/lok-sabha-passes-bill-to-raise-fdi-limit-in-insurance-sector-to-100-3833207

Deccan Chronicle. (2025, December 30). Life insurance penetration further falls to 2.7% in FY25: IRDAI Annual Report. https://www.deccanchronicle.com/business/life-insurance-penetration-further-falls-to-27-in-fy25-irdai-annual-report-1927344

Touchstone Partners. (2026). Key changes under India’s amended insurance laws regime. https://touchstonepartners.com/key-changes-under-indias-amended-insurance-laws-regime/

KPMG in India. (2026). First Notes: Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025. https://kpmg.com/in/en/insights/2026/01/firstnotes-sabka-bima-sabki-raksha.html

Shardul Amarchand Mangaldas & Co. (2025). 100% FDI proposed for the Indian insurance sector: Key implications and next steps. https://www.amsshardul.com/insight/100-fdi-proposed-for-the-indian-insurance-sector-key-implications-and-next-steps/

About the Contributor:

Sruti Halder is pursuing an MSc in Economics at the Gokhale Institute of Politics and Economics. She is committed to leveraging data-driven research and evidence-based policymaking to promote inclusive and sustainable socio-economic development. 

Acknowledgment:

I am writing to express my sincere gratitude to IMPRI (Impact and Policy Research Institute) for providing me with the opportunity to prepare this policy update article and for fostering a rigorous learning environment that connects research with public policy practice.

Reviewers: Madhuritha D, Ameya Satam

Publisher: Neha Kumari

Disclaimer:

All views expressed in the article belong solely to the author and do not necessarily represent the views or policies of the organization.

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