FDI for growth: Foreign participation in insurance should raise competition

Parliament this week cleared the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025, raising the foreign direct investment (FDI) limit in insurance companies from 74 per cent to 100 per cent, enabling complete foreign ownership. This marks the culmination of liberalisation, which began in 2000, when the sector was opened up to private players with a 26 per cent FDI cap. The limit was raised to 49 per cent in 2014 and further to 74 per cent in 2021. As of March 2024, 41 insurance companies had FDI and, as of September 2024, the industry had attracted nearly ₹82,847 crore in FDI since the reforms began, underscoring investor interest. The expectation is that higher FDI will attract more global insurers, boost innovation, and strengthen governance standards. Despite hosting around 73 insurers across the life and non-life segments, India’s insurance penetration remains low at 3.7 per cent of gross domestic product, which is roughly half the global average.

 

The Bill has amended three statutes — the Insurance Act, 1938; the Life Insurance Corporation Act, 1956; and the Insurance Regulatory and Development Authority Act, 1999. A key provision of the Bill empowers the Insurance Regulatory and Development Authority of India (Irdai) to issue sector-specific licences, allowing insurers to operate in single or niche lines of business such as cyber, property, or marine insurance. More broadly, the piece of legislation marks a shift from detailed statutory prescriptions to a regulation-driven framework, under which several operational norms will be set by Irdai through regulations rather than Parliament-approved law. This includes commission and remuneration caps for agents and intermediaries, giving the regulator greater flexibility to calibrate these limits in line with market conditions and consumer-protection objectives. The Bill also proposes moving key parameters such as minimum capital requirements, solvency margins, and investment norms from being under statute to bringing them under regulation, significantly expanding Irdai’s supervisory role. The next set of reforms in the sector could possibly look at composite licences permitting both life and non-life insurance under a single entity as is the case in many jurisdictions, including in the developed world.

 

Even as the sector opens up to greater competition and foreign investment, long-standing challenges continue to constrain its reach and credibility. Insurance coverage remains uneven, particularly in the rural and informal segments, where gaps in awareness, affordability, and distribution persist. Delays in claim settlement and disputes over payouts have further weakened public trust, discouraging a wider take-up. To address these issues, Irdai has rolled out reforms such as the Bima Sugam digital platform, which aims to create an integrated marketplace for buying, servicing, and settling insurance policies. Common KYC (know your customer) norms and streamlined grievance-redress mechanisms are intended to reduce friction, improve transparency, and make insurance more accessible. Ultimately, the success of insurance reforms depends not just on ownership liberalisation but on how well regulatory flexibility, consumer protection, and last-mile delivery are balanced to translate reform into real financial security for households and businesses alike.