The Lok Sabha passed an amendment bill on Tuesday to raise foreign direct investment (FDI) limit in India's insurance sector to 100% from 74% earlier, in a move that is likely to boost competition and spur capital inflows.
Of the 70 insurance companies operating in India, only 40 has foreign investments, with 10 of them having FDI of less than 26%, finance minister Nirmala Sitharaman said in Lok Sabha. As many as 23 insurers have FDI between 26% and 49%, three between 49% and 74% and four have 74%.
“100% in the sector will allow global insurance companies to inject substantial capital into their entities without waiting for domestic partners to make matching contribution under a joint-venture set up," she said.
The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025 seeks to strengthen policyholder protection by increasing penalties for insurers and intermediaries from the current ₹1 crore to ₹10 crore, a move intended to deter compliance lapses, she said. Penalty proceeds would be deposited in the proposed Policyholders’ Education and Protection Fund that aims to enhance insurance awareness and safeguard consumer interest.
Also, the bill provides for one-time registration of intermediaries to help them offer uninterrupted services, Sitharaman said, adding that it would make it easier to do business, ensure regulatory compliance and prevent regulatory delays. Insurance intermediaries include insurance agents, brokers, third-party administrators, and web aggregators.
For intermediaries, the bill also provides that their licences would not be cancelled for any violation of law, but only suspended. This would allow them to correct their lapses and comply with regulations.
The bill also reduced the net owned fund requirement for foreign reinsurers from ₹5,000 crore to ₹1,000 crore to provide a level field to reinsurers operating in domestic tariff area as compared to those operating in International Financial Services Centre (IFSC) at GIFT City, Gujarat.
She said that the bill also provides autonomy to state-run Life Insurance Corporation (LIC) to open zonal offices and align compliance for its foreign offices with the laws and regulations in respective jurisdictions. The new legislation has empowered insurance regulator to disgorge wrongful gains from insurance companies and intermediaries that will benefit policyholders.
The bill mandates that all insurance companies and insurance intermediaries include the words “insurance” or “assurance” in their names to clearly reflect the nature of their business. Sitharaman said this would help curb mis-selling, as policyholders would be able to easily identify authorised insurance entities.
Sitharaman said that the constant reform in the sector has boosted insurance penetration in the country. She said that insurance penetration in the country has grown from 3.3% in 2014-15 to 3.8% in 2024-25. During this period, Sitharaman said, insurance premiums rose from ₹4.15 trillion to ₹11.93 trillion and asset under management from ₹24.20 trillion to ₹74.43 trillion.
