India’s Parliament Greenlights 100% Foreign Direct Investment in Insurance Sector
India’s parliament has taken a significant step by approving a bill that raises the foreign direct investment (FDI) limit in the insurance sector from 74% to a remarkable 100%. This pivotal move is expected to enhance insurance coverage for millions in the world’s most populous nation.
The increase in the FDI limit is anticipated to attract substantial investments and improve insurance penetration, which currently stands at just 3.8% of GDP as of 2024, according to the Swiss Re Institute. This change is crucial for a country where a large portion of the population remains uninsured.
Finance Minister Nirmala Sitharaman emphasized the positive implications of the amendments, stating, “The amendments are expected to further strengthen job creation, skill development, and formal employment.” She presented the legislation in the lower house of parliament, highlighting its potential benefits for the economy.
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Currently, India’s insurance sector comprises around 74 firms, including joint ventures with international players like Prudential Plc, Sun Life Financial, and AIG. Among these, four companies have foreign investments capped at 74%, as noted by Sitharaman.
Saurabh Mishra, a partner at consultancy firm Kearney, remarked, “The higher FDI limit will encourage long-waiting foreign insurers to invest in India—especially those keen to bring deep global capabilities in risk and technology, along with capital.” This influx of foreign expertise and resources could significantly transform the landscape of the Indian insurance market.
The legislation, titled “Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act of 2025,” notably does not include a previously proposed unified or “composite” license. This license would have allowed insurers to offer life, general, and health insurance under a single entity. Currently, life insurance companies are restricted from selling health insurance products, while general insurers can only provide a limited range of products.
The omission of the composite license may lead some insurers to reconsider their expansion plans into other segments of the insurance market, according to Mishra. This could impact the overall growth strategy for various firms looking to diversify their offerings.
In a separate development, the bill permits the merger of an insurance company with a non-insurance firm, provided the combined entity operates within the insurance sector. Additionally, it establishes a dedicated fund aimed at educating policyholders and safeguarding their interests.
Limits on Commission
The new act grants legislative authority to the Insurance Regulatory and Development Authority of India (IRDAI) to set limits on commissions paid to insurance agents, moving away from reliance on executive powers. This shift aims to enhance regulatory oversight and ensure fair practices within the industry.
Furthermore, the act empowers the regulator to recover any wrongful gains made by insurance companies in violation of established rules, reinforcing accountability within the sector.
(Reporting by Nikunj Ohri; Editing by Mrigank Dhaniwala)
Related:
India’s parliament has taken a significant step by approving a bill that raises the foreign direct investment (FDI) limit in the insurance sector from 74% to a remarkable 100%. This pivotal move is expected to enhance insurance coverage for millions in the world’s most populous nation.
The increase in the FDI limit is anticipated to attract substantial investments and improve insurance penetration, which currently stands at just 3.8% of GDP as of 2024, according to the Swiss Re Institute. This change is crucial for a country where a large portion of the population remains uninsured.
Finance Minister Nirmala Sitharaman emphasized the positive implications of the amendments, stating, “The amendments are expected to further strengthen job creation, skill development, and formal employment.” She presented the legislation in the lower house of parliament, highlighting its potential benefits for the economy.
Read more: India’s Nuclear Bill Spares Suppliers from Accident Liability
Currently, India’s insurance sector comprises around 74 firms, including joint ventures with international players like Prudential Plc, Sun Life Financial, and AIG. Among these, four companies have foreign investments capped at 74%, as noted by Sitharaman.
Saurabh Mishra, a partner at consultancy firm Kearney, remarked, “The higher FDI limit will encourage long-waiting foreign insurers to invest in India—especially those keen to bring deep global capabilities in risk and technology, along with capital.” This influx of foreign expertise and resources could significantly transform the landscape of the Indian insurance market.
The legislation, titled “Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act of 2025,” notably does not include a previously proposed unified or “composite” license. This license would have allowed insurers to offer life, general, and health insurance under a single entity. Currently, life insurance companies are restricted from selling health insurance products, while general insurers can only provide a limited range of products.
The omission of the composite license may lead some insurers to reconsider their expansion plans into other segments of the insurance market, according to Mishra. This could impact the overall growth strategy for various firms looking to diversify their offerings.
In a separate development, the bill permits the merger of an insurance company with a non-insurance firm, provided the combined entity operates within the insurance sector. Additionally, it establishes a dedicated fund aimed at educating policyholders and safeguarding their interests.
Limits on Commission
The new act grants legislative authority to the Insurance Regulatory and Development Authority of India (IRDAI) to set limits on commissions paid to insurance agents, moving away from reliance on executive powers. This shift aims to enhance regulatory oversight and ensure fair practices within the industry.
Furthermore, the act empowers the regulator to recover any wrongful gains made by insurance companies in violation of established rules, reinforcing accountability within the sector.
(Reporting by Nikunj Ohri; Editing by Mrigank Dhaniwala)
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