100% FDI in Insurance Sector: A Boost to India's Growth
Finance Minister Nirmala Sitharaman introduced the long-awaited 'Sabka Bima Sabki Raksha Bill 2025' in the Lok Sabha on December 16. The bill aims to bring significant reforms in India's insurance sector, particularly by increasing the foreign direct investment (FDI) cap to 100%. This step will enhance the capabilities of domestic insurance companies and provide better access to insurance for the general public.
Presenting the bill, Finance Minister Sitharaman highlighted how insurance has always been a priority for Prime Minister Narendra Modi, especially for the marginalized communities during the COVID-19 pandemic. The bill proposes comprehensive amendments to three key laws: the Insurance Act of 1938, the Life Insurance Corporation Act of 1956, and the Insurance Regulatory and Development Authority Act of 1999.
The bill aims to increase transparency, ease compliance requirements, and encourage FDI in the insurance sector. The finance minister also emphasized that FDI in the sector has already increased from 26% in 2015 to 74% in 2021, and now the proposal is to increase it to 100%, which will likely stimulate growth in the sector. Since 2014, the number of insurance companies has increased from 53 to 74, and the total premium paid has grown significantly.
Key Highlights of the Bill
- 100% Foreign Direct Investment (FDI) in the Insurance Sector: After this bill is passed, foreign companies will be able to operate in India with 100% ownership. This will lead to an influx of foreign capital and the introduction of modern technologies and products by global insurance companies.
- Empowering LIC's Board: The bill proposes amendments to the Life Insurance Corporation (LIC) Act, giving more powers to LIC’s board, allowing it to open new zonal offices without prior government approval. This will help LIC compete more effectively with private insurers.
- One-time Registration for Agents and Intermediaries: The bill introduces a 'One-time Registration' system for insurance agents and intermediaries, eliminating the need for repeated license renewals, a significant move toward 'Ease of Doing Business'.
- Policyholder Protection: The bill includes provisions for heavy fines on insurance companies for non-compliance with regulations and proposes strengthening the Insurance Regulatory and Development Authority of India (IRDAI) to ensure faster and more transparent claims settlements.
- Relief for Foreign Reinsurance Companies: The bill also proposes reducing the mandatory 'Net Owned Fund' requirement for foreign reinsurance companies from ₹5,000 crores to ₹1,000 crores, making India an attractive market for reinsurance.
Impact on the Market
With the news of 100% FDI in the insurance sector, shares of listed insurance companies like LIC, SBI Life, and HDFC Life may experience volatility. Experts believe that this reform could completely transform the Indian insurance sector over the next decade.