Cabinet clears bill allowing 100 per cent FDI in insurance during Winter Session reform push

The Union Cabinet has approved a major reform in the insurance sector by clearing a bill that allows 100 per cent Foreign Direct Investment (FDI) in insurance companies. This move is seen as a significant step to strengthen the financial sector, attract global investment, and expand insurance coverage across India. The proposed bill is expected to be tabled during the ongoing Winter Session of Parliament, which will continue until December 19.

According to sources, the proposal is part of the Insurance Laws (Amendment) Bill, 2025, which is among the key legislations listed for discussion in Parliament. The government believes that increasing foreign investment limits will help modernise the insurance industry, improve efficiency, and support long-term economic growth. The reform also aligns with the government’s broader vision of making insurance accessible to every citizen.

Currently, foreign investment in the insurance sector is capped at 74 per cent. The new bill proposes to raise this limit to 100 per cent, allowing full foreign ownership of insurance companies operating in India. Officials say this change will encourage global insurers to enter the Indian market and expand existing operations.

What the bill proposes

The idea of raising FDI in insurance was first announced by Finance Minister Nirmala Sitharaman in the Union Budget. She had described the move as part of the next phase of financial sector reforms. Since opening up the sector, India’s insurance industry has already received foreign investment worth around Rs 82,000 crore.

The proposed amendments focus on making the insurance sector more competitive and investor-friendly. One of the key changes is allowing full foreign ownership of insurance companies. This means overseas firms will no longer need an Indian partner to operate in the country.

The bill also proposes to reduce paid-up capital requirements, which will make it easier for new players to enter the market. Lower capital thresholds can help smaller and specialised insurers launch operations, especially in niche segments like health, agriculture, and micro-insurance.

Another important reform is the introduction of composite licences. These licences would allow companies to offer multiple types of insurance—such as life, general, and health—under a single licence. This is expected to reduce compliance costs and simplify business operations.

ALSO READ: No shampoo can make your hair grow; here’s what they actually do

ALSO READ: The Thinking Game shows Silicon Valley is not thinking deeply about AI

In addition to changes in the Insurance Act of 1938, the government plans to amend the Life Insurance Corporation (LIC) Act, 1956, and the Insurance Regulatory and Development Authority Act, 1999. These amendments aim to modernise the legal framework governing the insurance industry and improve regulatory efficiency.

The proposed changes to the LIC Act are particularly significant. They are expected to give LIC’s board greater autonomy in key operational areas such as branch expansion, recruitment, and internal management decisions. The government believes this will help LIC respond faster to market needs and improve customer service.

Why the reform matters

The government says the bill is designed to expand insurance penetration and make insurance products more accessible across the country. Despite steady growth, insurance coverage in India remains low compared to many developed and emerging economies. Large sections of the population, especially in rural and semi-urban areas, are still uninsured or underinsured.

By allowing 100 per cent FDI, the government hopes to attract more capital, advanced technology, and global best practices into the sector. Increased competition is expected to lead to better products, improved service quality, and more affordable premiums for customers.

The reform is also linked to the national goal of achieving “Insurance for All by 2047”, which marks 100 years of India’s independence. This vision aims to ensure that every Indian has access to basic insurance coverage, providing financial security against health emergencies, accidents, and natural disasters.

Officials believe that a stronger insurance sector will support economic stability and long-term growth. Insurance plays a critical role in protecting individuals and businesses from financial shocks, while also mobilising long-term savings for infrastructure and development projects.

The government has emphasised that policyholder interests will remain protected. The Insurance Act of 1938 will continue to serve as the core law regulating the sector and defining the relationship between insurers, policyholders, shareholders, and the regulator, IRDAI. Regulatory oversight is expected to remain strong even with higher foreign participation.

The reform is also expected to create employment opportunities across the insurance value chain, including sales, technology, claims management, and customer service. With more players entering the market, demand for skilled professionals is likely to increase.

As the bill moves to Parliament during the Winter Session, it will be closely watched by industry experts, investors, and policymakers. If passed, it could mark one of the most significant changes to India’s insurance framework in recent years, reshaping the sector and accelerating its growth in the decades ahead.