The Lok Sabha has passed the Insurance Amendment Bill, 2025, marking a significant turning point for India's insurance sector. Officially titled the "Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025," this legislation aims to modernize the insurance framework, attract greater foreign investment, and enhance policyholder protection. The bill amends the Insurance Act, 1938, the Life Insurance Corporation Act, 1956, and the Insurance Regulatory and Development Authority Act, 1999.

Key Changes Introduced

• Increased Foreign Direct Investment (FDI): A core element of the amendment is raising the FDI limit in Indian insurance companies from 74% to 100%. This move is expected to unlock substantial foreign capital, encourage product innovation, and help insurers expand their reach, particularly in underserved areas. Finance Minister Nirmala Sitharaman stated that this will allow global companies to inject capital without relying on domestic partners for matching contributions.
• Streamlined Regulations and Ease of Doing Business: The bill seeks to simplify the regulatory landscape for insurance companies. This includes a one-time registration system for insurance intermediaries, removing the need for repeated approvals and easing compliance. The threshold requiring IRDAI approval for transferring paid-up equity capital in insurance companies will also increase from 1% to 5%, facilitating smoother share transfers.
• Enhanced Policyholder Protection: The legislation includes measures designed to safeguard policyholder interests. Penalties for non-compliance with regulations have been rationalized, with the maximum penalty increasing to ₹10 crore. The bill also establishes a Policyholders' Education and Protection Fund, financed through penalties, to promote insurance awareness and protect consumer interests.
• Greater Regulatory Powers: The Insurance Regulatory and Development Authority of India (IRDAI) will be empowered to issue directions to insurers and intermediaries to prevent detrimental practices and protect public interest. This includes the power to direct entities to return wrongful gains.
• Other Key Amendments:
  • The bill redefines "health insurance business" to include a broader range of benefits.
  • It allows mergers between insurance and non-insurance companies.
  • The legislation mandates that insurance companies and intermediaries include "insurance" or "assurance" in their names.
  • It reduces the net-owned fund requirement for foreign reinsurance branches to encourage more reinsurers to establish branches in India.
  • The bill grants greater operational autonomy to the Life Insurance Corporation (LIC), including decisions related to branch expansion and staffing.

Impact on You

The Insurance Amendment Bill, 2025, is poised to have a wide-ranging impact on insurance customers:

• Increased Choice and Innovation: With greater foreign investment and a simplified regulatory framework, the insurance sector is expected to see increased competition and innovation. This could lead to a wider array of insurance products tailored to specific needs, potentially including niche offerings like cyber, property, or marine insurance.
• Improved Service Standards: Increased competition and the entry of global players may drive improvements in service standards, including faster claims processing and more efficient customer support.
• Enhanced Protection: The bill's focus on policyholder protection, including increased penalties for non-compliance and the establishment of an education and protection fund, should provide consumers with greater confidence in the insurance system.
• Potential for Lower Premiums: Increased competition and efficiency could potentially lead to more competitive pricing and lower premiums for some insurance products.

The passage of the Insurance Amendment Bill, 2025, represents a significant step towards modernizing India's insurance sector and expanding coverage to a larger segment of the population. By attracting foreign investment, streamlining regulations, and strengthening policyholder protection, this legislation has the potential to create a more dynamic, competitive, and customer-centric insurance market in India.