Economic Survey 2026: Insurance law overhaul allows 100% FDI, boosts policyholder protection

The Economic Survey 2025–26 has highlighted the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025 as a major structural reform aimed at strengthening policyholder protection, deepening insurance penetration and accelerating the growth of India’s insurance sector. The Act, notified on December 21, 2025, amends key legislations including the Insurance Act, 1938, the Life Insurance Corporation Act, 1956, and the Insurance Regulatory and Development Authority Act, 1999.

According to the Survey, the amendments are designed to make insurance more accessible and resilient while aligning the sector with India’s broader ease-of-doing-business and digital governance agenda. A central feature of the reform is the sharp increase in the foreign direct investment (FDI) limit in Indian insurance companies from 74 per cent to 100 per cent. The government expects this move to attract stable, long-term foreign capital, support technology transfer, expand insurance coverage and enhance social protection across the country.

To simplify regulatory processes and ensure uninterrupted services to policyholders, the Act introduces one-time registration for insurance intermediaries. In another significant change, the threshold for seeking prior approval from the Insurance Regulatory and Development Authority of India (IRDAI) for transfer of shares has been raised from 1 per cent to 5 per cent of paid-up equity capital. The Survey notes that this relaxation is expected to reduce compliance friction and facilitate smoother ownership changes in insurance companies.

The amendments also aim to strengthen India’s reinsurance capacity. The requirement of net owned funds for foreign reinsurers has been reduced sharply from Rs 5,000 crore to Rs 1,000 crore, a step intended to encourage the entry of more global reinsurers and improve risk absorption within the domestic market.

On the consumer side, the Act provides for the creation of a Policyholders’ Education and Protection Fund. This fund will be used to enhance public awareness about risk protection and promote financial education among policyholders, addressing long-standing gaps in insurance literacy.

The Survey underscores stronger enforcement measures under the amended law. IRDAI has been granted powers to order disgorgement of wrongful gains made by insurers or intermediaries. The maximum penalty for violations of the Insurance Act or the IRDAI Act has been increased tenfold, from ₹1 crore to ₹10 crore, and now explicitly covers insurance intermediaries as well. These provisions are expected to act as a strong deterrent against regulatory non-compliance.

Importantly, the amendments align the insurance framework with the Digital Personal Data Protection Act, 2023, creating a legal basis for the secure use of digital public infrastructure while safeguarding policyholder data. Complementing the Act, the Indian Insurance Companies (Foreign Investment) Amendment Rules, 2025 were notified on December 30, further rationalising conditions for insurers and intermediaries to improve ease of doing business.