Parliament passed the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025, earlier in December with characteristic speed, amending insurance laws that have remained largely unchanged for decades. The legislation permits 100% FDI in Indian insurance companies, lowers capital requirements for reinsurers, and tweaks various regulatory thresholds.
Upon reading through the bill's provisions, one can notice that the new legislation aims to foster a favourable environment for investors, foreign companies seeking entry, and entities operating in special economic zones, but has few meaningful provisions to address what actually ails India's insurance sector.
To be fair, the bill is probably necessary. Opening up the sector to greater foreign participation could bring capital, expertise, and competitive pressure.
Reducing bureaucratic hurdles for share transfers and expanding the definition of intermediaries are sensible updates. However, the bill is notable for its absence of any serious attempt to address long-standing customer grievances that have characterized the sector for decades.
The bill includes one provision that sounds promising on paper: the establishment of a policyholders' education and protection fund, to be administered by the Insurance Regulatory and Development Authority of India (Irdai). The fund will be used to "protect the interests of policyholders and educate them."
One might be forgiven for feeling a flicker of hope at this language. That hope, however, evaporates quickly when one raises the question: who exactly will be doing the educating?
The imbalance between insurance sellers and buyers has been documented earlier. Persuasive agents often rely on technical language that confuses rather than clarifies, steering the focus away from potentially inconvenient questions.
Insurance customers usually encounter the system only a handful of times in their lives. The regulator had ample time and opportunity to address aggressive practices, yet these trends continue unabated.
Educating buyers
Meaningful insurance education would require honesty. It would begin by acknowledging that many products approved and aggressively sold in the market may hurt customers' financial well-being. It would also show that many insurance companies set incentives — particularly the higher payouts on Ulips and traditional policies compared to term insurance— in ways that may encourage mis-selling.
It may be unrealistic to expect Irdai to deliver such lessons. The regulator cannot state that the products it has approved for sale favour institutional gains rather than focus on customer protection. It would amount to admitting that the regulatory framework itself is broken.
As a result, “education” is more likely to mean generic messaging about the importance of insurance, advice to read complex policy documents, and encouragement to buy more products.
Dhirendra Kumar is founder and chief executive officer of Value Research, an independent investment advisory firm. Views are personal.