India's insurance reforms mark a fundamental structural advance

The 2025 insurance law amendments removing the FDI cap signal a decisive shift towards capital depth, competition and technology, strengthening India's push for Insurance for All

The passing of the Insurance Laws Amendment Bill, “Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025,” in December 2025, marked the beginning of a new chapter for India’s financial sector. After years of debate by successive administrations, the Modi government finally succeeded where others failed in raising the limit on foreign direct investment (FDI) in the insurance sector to 100 per cent, functionally eliminating the previous cap. In doing so, Prime Minister Modi did more than just open the door to global capital; he signalled that the Indian insurance market has matured enough to compete on the world stage. 

 

 

India’s insurance penetration rate (total insurance as a percentage of gross domestic product) is only half the global average and one-third the level achieved in mature markets like the United States (US). Likewise, India’s insurance density (amount of insurance per capita) is just one-tenth of the world average. These statistics highlight just how underinsured Indian citizens are compared to their peers in other countries. Faced with this chronic financial vulnerability, the debate in India long focused on arguments over protectionism versus liberalisation. Today, the Modi government has shifted the narrative to one of implementation and embraced increased foreign investment as an important tool for achieving the Prime Minister’s goal of Insurance for All by 2047. 

 

Over the years, critics of foreign investment in Indian insurance have cited fears about foreign domination and capital flight. This view misses the nuance of the insurance business. Unlike equity markets, with their shorter investment horizons and potential “hot money” flows, insurance rests on a foundation of patient, long-term capital. The 2025 reforms open the door to global insurers to put down deep roots in India, as they do in so many other markets around the world. 

 

Removing the FDI cap in the insurance sector will attract significant new investment in the sector. The increase will come both from new greenfield entrants and the restructuring of existing joint ventures. Foreign partners previously restricted to government-mandated JV partnerships can now take full ownership, providing the incentive and ability for them to leverage their global resources for long-term growth and development in India.

 

A further strength of the 2025 reform lies in the stripping away of the bureaucratic red tape that has slowed the deployment of capital in India's insurance sector. By relaxing stringent board composition requirements and easing some citizenship criteria for key management personnel, the government has demonstrated its confidence in the private sector and market forces. The reforms will allow insurers to operate in India with the flexibility and speed that global competition demands. 

 

This shift to market-driven accountability is precisely what will attract the patient capital India needs, unlocking growth that excessive governance restrictions once stifled. It will also facilitate technological advances, as global insurers bring proprietary technology that will revolutionise customer outreach, underwriting, and claims processing in India.

 

Ultimately, insurance is a social product, a shock absorber that protects families and businesses from unexpected financial calamity. The influx of capital, competition, and technology because of these latest reforms will inevitably lower the cost of insurance delivery and move India closer to Insurance for All. 

It would be naive to suggest these reforms are a silver bullet. Challenges persist. The capital requirements for setting up an insurance business in India remain high, and the regulatory environment, while improving, is complex. Skeptics argue that foreign ownership could lead to profit repatriation rather than reinvestment. However, the long-term nature of insurance liabilities acts as a natural hedge against capital flight. 

 

Furthermore, the sheer size of the Indian opportunity incentivises reinvestment. The experts are right to be optimistic. The 2025 reforms represent a confident India. The elimination of the FDI cap is a strategic manoeuvre to modernise India’s financial infrastructure, deepen its capital markets, and provide a safety net for a billion-plus under- and uninsured citizens. The private sector will necessarily drive this expansion, and by allowing global players to operate freely, Prime Minister Modi has created a competitive environment in which the Indian consumer will be the winner. 

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The author is Senior Vice President for Policy & Research at the US-India Strategic Partnership Forum (USISPF) and former US Treasury Financial Attache to India  (Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper)