Union Cabinet Approves 100% FDI in Insurance: Bill to be Introduced in Parliament
The Union Cabinet on Friday approved 100 per cent foreign direct investment (FDI) in the insurance sector, a significant move that has been welcomed by industry stakeholders. This decision is expected to attract more capital and global expertise, thereby boosting insurance coverage in the country.
A bill to amend the insurance law is likely to be introduced in Parliament on Monday, as the winter session is set to conclude on December 19. The Centre had proposed to raise the FDI limit from 74 per cent to 100 per cent in the Union Budget 2025-26. As of 2023, general-insurance penetration in India was relatively low, at 1 per cent of gross domestic product, compared to a global average of 4.2 per cent.
The insurance sector has so far received ₹82,000 crore through FDI. To ensure uninterrupted service and support to policyholders and to promote ease of doing business, a one-time registration of insurance intermediaries has been proposed. Additionally, the limit for seeking regulatory approval for transferring shares of paid-up equity capital is being raised from the current 1 per cent to 5 per cent.
As part of a comprehensive reform, the Insurance Act, 1938, the Life Insurance Corporation (LIC) Act, 1956, and the Insurance Regulatory and Development Authority Act, 1999, will be amended. The amendments to the LIC Act propose empowering its board to take operational decisions, such as branch expansion and recruitment.
Increasing the FDI limit to 100 per cent can serve as a strong catalyst for the sector, according to Sharad Mathur, MD and CEO, Universal Sompo General Insurance. Greater capital inflows will not only support expansion plans but also facilitate investments in advanced risk-assessment models and more efficient claims-management systems. This will deepen market penetration, particularly in tier-3 cities where insurance adoption remains low.
To enhance insurance awareness and protect policyholders, a fund for policyholders’ education and protection has been proposed. The Insurance Regulatory and Development Authority of India (Irdai) will gain the power to disgorging wrongful gains made by an insurer or intermediary. The requirement of net-owned funds for foreign re-insurers is proposed to be reduced from ₹5,000 crore to ₹1,000 crore.
To improve regulatory governance, a provision for a standard operating procedure for regulation-making is being introduced in the Irdai Act. This will ensure that levying penalties is transparent and rational. Factors in levying penalties are also being introduced to enhance transparency.
This reform brings clarity, confidence, and long-term capital into a growing sector that plays a central role in strengthening financial security, according to 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.
