India's insurance sector witnessed a year of significant reforms in 2025, marked by policy changes, digital advancements, and a renewed focus on consumer protection. While these developments have set the stage for robust growth and increased penetration, there's still considerable ground to cover to achieve the vision of "Insurance for All".
Key Policy Reforms and Regulatory Developments
The year's landmark achievement was the passage of the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025. This bill brought about several transformative changes, including:
- Increased FDI Limit: The bill raised the foreign direct investment (FDI) cap in Indian insurance companies from 74% to 100%. This move aims to attract global expertise, spur competition, and accelerate innovation across the sector.
- Empowered IRDAI: The Insurance Regulatory and Development Authority of India (IRDAI) gained enhanced powers to regulate commission disclosures and conflicts of interest, particularly in bancassurance. The regulator can now set limits on commissions and mandate their disclosure to customers, curbing misselling and promoting transparency. Penalties for serious violations have also been increased significantly.
- Streamlined Regulations: The bill introduced a one-time registration for insurance intermediaries to simplify compliance and raised the threshold for IRDAI approval of equity transfers from 1% to 5%, easing business operations.
- Merger Approvals: The bill brought within its purview merger of insurance companies with a company not engaged in insurance business, which will now require an approval from the IRDAI.
Focus on Affordability and Accessibility
Several initiatives aimed to make insurance more affordable and accessible to a wider population. A major step was the government's decision to fully exempt health, personal accident, and travel insurance from Goods and Services Tax (GST). This move recognized insurance as an essential financial service, aiming to enhance affordability, especially for lower-income groups.
To improve accessibility, insurers are encouraged to target Tier II and Tier III cities and rural areas. Innovative distribution models can facilitate the inclusion of underinsured customers already covered by government schemes.
Digital Transformation and Technological Advancements
The insurance sector embraced digital transformation in 2025, with increased adoption of technologies like AI and ML for underwriting, claims processing, and fraud detection. Digital policy issuance surged, and a significant portion of health claims were processed through digital or cashless modes.
Initiatives like the Bima Sugam platform were launched to create a one-stop destination for purchasing insurance policies. IRDAI also introduced a new payment mechanism via UPI, allowing policyholders to block funds for premiums until policy issuance, preventing unauthorized deductions.
Growth and Challenges
The Indian insurance market is projected to be the fastest-growing within the G20. In FY25, the sector recorded a 5.1% year-on-year increase in New Business Premium (NBP), totaling Rs. 3.97 lakh crore. However, insurance penetration remains relatively low at 3.7% of GDP, indicating significant potential for expansion.
Despite the progress, challenges remain. Mis-selling, biased advice, and data privacy concerns continue to be issues. Cyber threats have also increased with the adoption of digital processes.
The Road Ahead
Looking ahead to 2026, the focus will likely shift towards improving the quality, consistency, and trust in the insurance sector. This includes simplifying products, ensuring faster and more predictable claims, and deepening customer engagement. Insurers will need to prioritize transparency and long-term outcomes to shape the future of the sector. Furthermore, in April 2026, new rules will link capital requirements to specific risks and a new accounting standard will alter how insurers recognize revenue and profits to align India's insurance sector with global practices.
