Source: Policy Prism Artwork
The Insurance Bill
The Government of India has recently
allowed 100% FDI in insurance sector, marking a decisive step towards financial
inclusion and reinforcing India’s financial ecosystem. Despite being the
fastest growing economy, the penetration and density of insured remained
significantly lower than the global benchmarks. The aim of the Sabka Bima
Sabki Raksha bill is to achieve ‘Insurance for all by 2047’.
The Sabka Bima Sabki Raksha (Amendments
to Insurance Laws) bill brings changes to key legislations including-
- the Insurance Act, 1938,
- the Life Insurance Corporation Act, 1956 and,
- the Insurance Regulatory and Development Authority Act, 1999
What are the key provisions of the Insurance
Bill 2025 (Sabka Bima
Sabki Raksha Bill)?
- The Foreign Direct Investment in insurance sector has raised from 74% to 100%, on the condition that 100% of the premium income has to be invested within India.
- Reduces net owned fund (NFO) requirement for foreign reinsurers from INR 5000 crore at present to INR 1000 crore.
- Simplifies compliance procedures by introducing one-time registration for insurance intermediaries.
- Improves ease of doing business by raising the threshold of IRDAI approvals of equity transfers to 5%
Also Read: https://www.policyprism02.in/2025/11/removal-of-quality-control-orders-2025.html
Why is the Insurance Bill 2025 needed?
The two main metrics- Insurance penetration and insurance density are majorly used to assess the development of insurance sector in India.
1. Insurance Penetration- Premium as a percentage of GDP
India’s insurance penetration is highly
stressed as compared to global average, advanced economies and even emerging
Asian peers, particularly non-life segment where it is currently at just 1 per
cent. Over the years, the penetration of insurance in India has remined in the
average of 3-4 per cent. This highlights the potential of untapped risk
coverage and explains why India remains unattractive for long-term investments
in insurance sector.
2. Insurance Density- Ratio of premium to population (or the per capita premium)
India’s insurance density currently stands
at USD 95, which is remarkably lower than that of global average of USD 889,
around just 11%. Among Asian peers, it is one-sixth of Malaysia’s and
one-fourth of Thailand’s. Comparing it with advanced economies like UK or US,
the gap is much starker at around two orders of magnitude.
Data Source: IRDAI, https://irdai.gov.in/en/document-detail?documentId=6742666
This data indicates-
- Limited risk awareness and literacy
- Shallow insurance markets
- Capital constraints
- Lack of innovation and distribution
Also Read: https://www.policyprism02.in/2025/12/world-inequality-report.html
Why the new Insurance Bill 2025 matters?
This huge gap between Indian global benchmarks
reinforces the economic need for 100 per cent FDI in insurance. India needs
long-term capital instead of incremental investments. Foreign investments would
bring in the much-needed market depth by presenting actuarial expertise, reinsurance
linkages, risk-based pricing and digital capabilities. Besides, International insurers
are now able to establish wholly owned subsidiaries and accelerate capital deployment.
What are the concerns related to the Insurance Bill 2025?
- Pressure on small domestic insurer
- Aggressive pricing
- Concentration risks
What can be done to an effective outcome of the Insurance Bill 2025?
IRDAI needs to focus more on-
- Maintaining solvency and capital adequacy ratios
- Product innovation and suitability
- Data protection
Conclusion and the Path Forward
In all, the 100% FDI in insurance sector shows
India’s commitment to build a deep and competitive insurance market. However,
the reform’s success in real terms would be measured by higher coverage, better
claim settlements and stronger financial security for all stakeholders. If
regulatory effectiveness comes in on time, this reform would be one of the best
and most consequential financial reform in recent times.
Contact: policyprism02@gmail.com for research based consultancy