Lok Sabha passes Insurance Bill allowing 100% FDI

The Lok Sabha has passed the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, marking one of the most significant reforms in India’s insurance sector in decades. The legislation raises the foreign direct investment (FDI) cap from 74 per cent to 100 per cent and strengthens regulatory oversight with a sharper focus on policyholder protection, transparency, and market expansion.

Key legislative changes and scope

The Bill amends three core laws governing the sector: the Insurance Act, 1938, the Life Insurance Corporation Act, 1956, and the Insurance Regulatory and Development Authority Act, 1999. It allows 100 per cent FDI across life, general, health, reinsurance, and other notified insurance businesses. The legislation also permits mergers between insurance and non-insurance companies, aimed at improving operational efficiency and capital access.

Government rationale behind 100% FDI

Replying to the debate, Finance Minister Nirmala Sitharaman stated that the objective of opening the sector fully to foreign investment is to improve insurance penetration, efficiency, and consumer choice, not to weaken public sector insurers. She highlighted that the government has infused ₹17,450 crore into three public sector non-life insurance companies and taken steps to strengthen their balance sheets. The gradual increase in FDI limits since 2015 has coincided with growth in insurers and coverage.

Stronger powers for IRDAI and policyholder protection

A major feature of the Bill is enhanced authority for the Insurance Regulatory and Development Authority of India (IRDAI). The regulator can now cap commissions and remuneration paid to insurance agents and intermediaries in the interest of policyholders. It is also empowered to order disgorgement of wrongful gains or losses averted by insurers or intermediaries found violating the law. Provisions for data collection have been aligned with the Digital Personal Data Protection Act.

What to Note for Exams?

• FDI limit in insurance raised from 74% to 100%.
• IRDAI can cap agent commissions and order disgorgement.
• Top leadership of insurers must be Indian citizens.
• The Bill amends three major insurance-related Acts.

Sector impact and structural reforms

The Bill mandates that the chairperson, managing director, or CEO of an insurance company must be an Indian citizen, even with full foreign ownership. It provides greater autonomy to LIC, including expansion of offices, and introduces a Policyholders’ Education and Protection Fund financed through penalties. The government noted that the number of insurers has risen from 53 in 2014 to 74, while insurance penetration and density have shown steady improvement, reflecting the broader impact of sustained reforms.