Govt clears 100% FDI, composite licences in sweeping insurance reforms

The Insurance Laws

(Amendment) Bill is expected to be introduced in both houses of Parliament next week, the first of the two officials quoted above said.

The bill allows a differential licensing regime to support micro-insurers serving low-income and rural populations and paves the way for captive insurers — allowing conglomerates to establish in-house insurers to manage group-level risks, according to both the people quoted earlier, who spoke on the condition of anonymity.

India currently caps FDI in the insurance sector at 74%.

No FDI cap and easier rules are aimed at driving investments, as India has among the lowest insurance penetration among large global economies.

According to the Insurance Regulatory and Development Authority’s FY24 annual report, India’s insurance penetration fell to 3.7% from 4% in FY23 against the global average of 7%.

The insurance amendment bill was slated for introduction in the Budget Session, but was delayed as the ministry of finance sought to add provisions on 100% FDI and ease of operational considerations for foreign investors.

That required fresh vetting by the law ministry.

“The government’s move to permit 100% FDI in insurance represents a transformative step for India’s risk and protection landscape.

It opens the door to greater foreign capital, global best practices and advanced capabilities, which will in turn lead to deeper insurance penetration, product innovation, and stronger underwriting capacity—all critical for an economy as dynamic as India’s,” said Sanjay Kedia, chief executive at Marsh McLennan India and president and CEO, Marsh India.

“Consumers will benefit from increased choice, more customised coverage, competitive pricing, and faster, more seamless service.”

A query emailed to the cabinet secretariat and the finance ministry remained unanswered until press time.

Who gains

The composite licence would benefit life insurers, including the state-run behemoth Life Insurance Corp., and its private sector rivals such as Aditya Birla Sun Life, Aviva Life Insurance, Canara HSBC Life Insurance and Edelweiss Tokio Life Insurance, among others, to enter the non-life segment.

Additionally, general insurers such as Kotak Mahindra General Insurance, Sriram General Insurer, and others can begin offering life insurance.

The proposed change will also allow large financial services groups, such as ICICI, HDFC and SBI, which have both life and general insurance companies, to cross-sell products or bundle life and non-life products together.

Meanwhile, a higher FDI limit could help insurers, which have already reached the 74% cap, attract more foreign investment.

These include Ageas Federal Life Insurance, Aviva Life Insurance, Credit Access Life Insurance, Future Generali Life Insurance.

Kotak Mahindra General Insurance is close to the current cap at 70%.

Investment boost, say experts

The bill, which may be introduced as ‘Sabka Bima Sabki Raksha’, seeks to streamline investment rules, and provide more regulatory powers to set licensing fees.

Some reports suggested that the government has only cleared raising the FDI limit in insurance, but the two officials quoted above said that the bill is a comprehensive legislation that covers several aspects of reforms.

The legislation will revise three key laws—the Insurance Act, the LIC Act, and the IRDA Act—paving the way for greater autonomy for the insurance regulator and LIC in appointments, office setup, and staffing, according to the people.

It will also eliminate the need for future amendments to the LIC Act and related laws to enable composite licensing, allowing a single insurer to offer both life and non-life products.

Sharad Mathur, MD and CEO, Universal Sompo General Insurance Co., said greater capital inflows will enable insurers to expand their business, strengthen balance sheets and invest in advanced risk-assessment models and more efficient claims-management systems.

“It will also support deeper market penetration, particularly in tier-3 cities where insurance adoption remains low,” said Mathur.

“Overall, for the general insurance market, this move can unlock better use of data, more accurate pricing and more sustainable product innovation, ultimately making the sector more resilient and better equipped to serve people at an optimal level.”

Captive insurers, easier capital norms and more

The bill introduces a differential licensing regime to support micro-insurers serving low-income and rural populations and paves the way for captive insurers — allowing conglomerates to establish in-house insurers to manage group-level risks.

The legislation proposes composite licences with a higher capital threshold of ₹150 crore, while retaining existing capital norms for insurance and reinsurance at ₹100 crore and ₹200 crore, respectively.

Composite licensing is permitted in Singapore, Malaysia, and the UK.

The bill slashes the net-owned fund requirement for foreign insurers from ₹5,000 crore to ₹1,000 crore, and empowers the regulator to allow micro and niche insurers to enter underserved markets with a minimum capital of ₹50 crore on a case-by-case basis.

The amendments introduce differential solvency margins, parity with banks on share-transfer approvals, and remove caps on commission payments.

According to Kedia of Marsh McLennan, the reforms will likely catalyse fresh investments in technology, including AI-driven analytics, digital distribution, and predictive risk modelling, enabling faster claims processing, improved risk prevention, and more relevant protection solutions.

“By aligning India’s insurance sector with global standards, these changes will not only strengthen financial stability but also empower businesses and individuals to better navigate the complex risks of today’s world.”

The Insurance Brokers Association of India (IBAI) called the amendments a significant step to unlock the insurance sector’s full potential.

“Opening the sector fully to global capital sends a strong signal of confidence in India’s insurance market and regulatory maturity.

This reform will enable insurers to access long-term capital, advanced risk-management expertise, global best practices and cutting-edge technology, critical ingredients for expanding insurance coverage, improving product innovation and strengthening claims and service capabilities across the country,” said Narendra Bharindwal, president, IBAI.

“From an insurer’s standpoint, enhanced capital availability will support deeper penetration in under-insured and rural markets, facilitate the development of specialised products such as health, catastrophe, cyber and longevity covers, and allow companies to make sustained investments in distribution, digital infrastructure and human capital,” he said.

At the same time, as the sector opens up further, it is essential that growth remains anchored in strong governance, robust solvency norms and uncompromising policyholder protection.

Regulatory clarity, effective supervision and a level playing field will be key to ensuring that increased competition translates into better outcomes for consumers,” he said.

Since the insurance sector was opened to private players in 2000—with FDI limits gradually raised from 26% to 74%—India has seen robust growth.

Between 2014 and January 2024, while the number of insurers rose from 53 to 70, and insurance density–or per capita premium–nearly doubled from $52 to $92, according to the finance ministry.

“This reform brings clarity, confidence and long-term capital into a growing sector that plays a central role in strengthening financial security.

Global expertise and sustained investment can help accelerate innovation, improve consumer experience and expand access across the country,” said Sarbvir Singh, Joint Group CEO, PB Fintech.

“With deeper capital pools and a more diverse set of players, the industry can reach new customer segments and drive meaningful growth in insurance penetration, supporting India’s goal of comprehensive financial protection for all.”