Sabka Bima Sabki Raksha Bill 2025: Finance Minister Sitharaman tables landmark insurance reforms in Lok Sabha

Finance Minister Nirmala Sitharaman on Tuesday introduced the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025, in the Lok Sabha, signaling a transformative shift for India's insurance industry. This ambitious legislation amends three foundational laws: the Insurance Act, 1938; the Life Insurance Corporation Act, 1956; and the Insurance Regulatory and Development Authority Act, 1999. At its core lies a bold proposal to elevate the foreign direct investment (FDI) limit in insurance companies from 74% to 100%, enabling full foreign ownership.

This reform, first unveiled in Sitharaman's Union Budget speech earlier this year, stems from the government's drive for next-generation financial sector liberalisation. The Union Cabinet approved the bill last Friday, building on the Rs 82,000 crore in FDI already infused into the sector. Officials anticipate the hike will unleash a surge of global capital, addressing India's lag with just 70 insurers against nearly 10,000 worldwide. The goal? Lure international giants and foster long-term investments to bolster penetration and innovation.

Safeguards remain intact: even with 100% FDI, at least one top executive—chairperson, managing director, or CEO—must be an Indian citizen. The bill also greenlights mergers between non-insurance and insurance entities, streamlining corporate structures.

Narendra Ganpule, Partner at Grant Thornton Bharat, hailed the move as a testament to economic liberalization. "It removes hurdles like mandatory domestic partnerships, inviting fresh global entrants and empowering existing foreign investors with greater control," he noted.

Shailaja Lall, Partner, Shardul Amarchand Mangaldas & Co., said:  “The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025 (the Bill) lays a clears enabling framework to attract FDI investment such as removing FDI caps, streamlined share transfer approvals, reduced capital for foreign reinsurers setting up branches, empowered IRDAI oversight, and modernised data/KYC rules—while deferring many specifics to forthcoming rules and IRDAI regulations. The Bill also introduces a framework to potentially allow future introduction of composite licences. The eventual impact will turn on precise rule-making, alignment with FEMA/FDI policy, and calibrated prudential standards to balance innovation, capital inflows, and policyholder protection. Removal of the mandatory requirement to tie up with a domestic partner lowers entry barriers and may spur new entrants, although several foreign entrants may have to rely heavily on domestic partners for their distribution needs."

Key provisions beyond FDI

The bill introduces targeted changes to invigorate competition and regulation:

Reinsurer entry barrier: Minimum net owned funds for foreign reinsurers drops from ₹5,000 crore to ₹1,000 crore, aiming to draw global players and lessen dependence on state-run General Insurance Corporation of India.

IRDAI's muscle boosted: The Insurance Regulatory and Development Authority of India (IRDAI) gains SEBI-like powers, including disgorgement of illicit gains by insurers or intermediaries. It also streamlines a one-time registration for intermediaries, raises equity transfer approval thresholds from 1% to 5%, and formalizes penalty criteria.

LIC flexibilities: India's largest insurer, Life Insurance Corporation (LIC), can now establish new zonal offices sans government nod and realign overseas operations with foreign regulations.

Policyholder safeguards: A new Policyholders' Education and Protection Fund will shield consumers' interests.

Leadership tenure updates: IRDAI Chairperson and whole-time members get a five-year term or until age 65 (whichever earlier), up from the current 62-year cap for members.