Sabka Bima Sabki Raksha: New Insurance Bill [2025]

On December 13, 2025, the Union Cabinet approved the Sabka Bima Sabki Raksha Bill, 2025. It allows 100% foreign ownership in insurance companies, strengthens IRDAI’s powers, and improves protection for policyholders.

• Relevant for UPSC Prelims
• Relevant for GS Paper II (Polity & Governance)
• Relevant for GS Paper III (Economy & Inclusive Growth)
• Important for Essay Papers

The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025, is a comprehensive legislative reform that updates and amends three foundational acts governing India's insurance sector: 

1. Insurance Act 1938
2. Life Insurance Corporation (LIC) Act 1956
3. Insurance Regulatory and Development Authority of India (IRDAI) Act, 1999.

It focuses on making insurance easy to obtain, affordable, and reliable, while also attracting global investment and expertise to strengthen and enhance the efficiency of India’s insurance sector.

• This bill is the government’s plan to ensure insurance reaches every Indian by 2047.
• Increases FDI limit to 100% from the previous 74%, allowing full foreign ownership of Indian insurance companies.
• Life insurance accounts for 74% of total premiums in India, which is significantly higher than the global average of 41%.
• Provides enhanced regulatory oversight to IRDAI with stronger enforcement powers.
• Expands insurance intermediaries to include managing general agents, insurance repositories, and other specialised entities.
• Ease capital rules, for example, the net-owned fund requirement for foreign reinsurance branches is cut from ₹5,000 crore to ₹1,000 crore.

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The Bill aims to expand insurance coverage to more people, streamline business operations in the insurance sector, and enforce stricter regulations. The goals include:

• Boost insurance sector growth by attracting long-term domestic and foreign investment.
• Expand insurance coverage to underserved groups like workers, rural areas, and marginalised communities.
• Bring in global capital and expertise to improve technology, risk management, and products.
• Strengthen regulation and transparency through clear procedures and public consultation.
• Enhance policyholder protection with strong data security and awareness initiatives.
• Promote inclusive insurance via PM Jeevan Jyoti Bima Yojana (life insurance), PM Suraksha Bima Yojana (accident insurance), and Ayushman Bharat (health insurance)

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The bill contains numerous specific provisions that fundamentally reshape how insurance companies operate in India. Key features of the Bill include:

1. 100% FDI Permitted in Indian Insurance Companies

• The Bill proposes to increase the Foreign Direct Investment (FDI) limit from 74% to 100% of the paid-up equity capital in Indian insurance companies.
• This aims to attract more foreign investment, enhance capital availability, and strengthen the global competitiveness of the insurance sector.

2. Lowering of Net-Owned Fund Requirements for Foreign Re-insurers

• The Bill reduces the net-owned fund requirement for foreign entities engaged in re-insurance business from ₹5,000 crore to ₹1,000 crore.
• Net-owned fund includes:
  • Paid-up equity capital
  • Free reserves
  • Balance in share premium account
  • Capital reserves made up of surplus from sale proceeds

3. Registration of Transfer of Shares

• Under the Insurance Act, 1938, a public insurance company needed IRDAI’s approval to register the transfer of shares if the transfer value exceeded 1% of the paid-up share capital.
• The Bill proposes to raise this threshold to 5% of the paid-up share capital.
• This will simplify shareholding transactions and reduce regulatory delays.

4. Minimum Paid-up Share Capital for Insurance Co-operative Societies

• The Bill removes the requirement of a minimum paid-up share capital of ₹100 crore for insurance co-operative societies.
• This change applies to life, general, and health insurance businesses.
• It aims to promote greater participation and flexibility in the co-operative insurance sector.

5. Application of the Act to Insurers in SEZs and IFSCs

• Under the 1938 Act, the central government could exempt or modify provisions for insurers operating in Special Economic Zones (SEZs).
• The Bill extends these powers to:
  • International Financial Services Centres (IFSCs) are established in SEZs.
  • Insurance intermediaries operating within SEZs or IFSCs.

6. Expansion of Definition: Insurance Intermediaries

• The definition of insurance intermediaries is broadened.
• In addition to existing categories like brokers, insurance consultants, and third-party administrators, the Bill includes:
  • Managing General Agents (MGAs)
  • Insurance Repositories

7. Enhanced Powers of the Insurance Regulatory and Development Authority of India (IRDAI)

• The Bill expands IRDAI’s powers to strengthen regulation and protect policyholders’ interests.
• Key powers include:
  • Approving schemes of arrangement between an insurer and a non-insurance company.
  • Superseding the Board of Directors of an insurer by appointing an Administrator if business practices are harmful to policyholders.
  • Specifying regulations on remuneration, commission, and rewards for agents/intermediaries, including limits, mode of payment, and disclosures.
  • Extending inspection and investigation powers to cover insurance intermediaries as well.

8. Policyholders’ Education and Protection Fund

• The Bill provides for the establishment of a Policyholders’ Education and Protection Fund under the administration of IRDAI.
• The Fund aims to protect and educate policyholders.
• It will be financed through:
  • Donations or grants from the central government, state governments, IRDAI, companies, or other institutions.
  • Penalties received by IRDAI.
  • Other sums are specified through regulations.

9. Greater Autonomy for Life Insurance Corporation (LIC)

• LIC has been granted freedom to open new zonal offices without prior government approval and to align its overseas branches with local laws and regulations.
• This autonomy enables faster regional expansion and improved administrative efficiency.

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The Bill is important as it strengthens policyholder rights while boosting growth and investment in the insurance sector, helping expand coverage, improve trust, and support economic stability.

• Increasing the Foreign Direct Investment (FDI) limit from 74% to 100% will allow global insurers to invest fully in Indian companies.
• Raising the threshold for share transfer approval from 1% to 5% reduces the frequency of seeking regulatory permission for minor transactions.
• Establishes a Policyholders’ Education and Protection Fund to increase awareness and protect consumer interests.
• Empowers IRDAI to impose higher penalties and disgorge (recover) wrongful gains made by insurers or intermediaries to deter malpractice.
• Allows insurers to offer value-added services incidental to insurance (e.g., wellness programs, risk management) to improve customer engagement.
• The reforms are a critical step toward the government's target of "Insurance for All by 2047" by deepening penetration and increasing coverage density.

While the Bill aims to modernise the insurance sector, stakeholders have raised significant concerns regarding the impact on domestic control, financial stability, and employment.

• Low Insurance Coverage: Insurance penetration is still low in India. Law changes alone won’t help unless awareness and last-mile reach improve.
• Implementation Challenges: The success of the Bill depends on proper execution, clear rules, and strong distribution networks, not just higher FDI limits.
• Consumer Trust Issues: Mis-selling and rising complaints show the need for strict enforcement, better agent regulation, and effective grievance redressal.
• Regulatory Capacity: With more powers, IRDAI must strengthen its capacity and ensure transparent, consultative rule-making.
• Concerns Over Foreign Control: While 100% FDI brings expertise, balancing foreign interests with Indian consumer needs will be crucial.
• No Composite Licence: Life and non-life insurers remain separate, limiting efficiency and integrated insurance offerings.
• Rural Reach & Awareness: Expanding insurance in rural and low-income areas requires strong infrastructure and insurance literacy efforts.
• Data Privacy Risks: As more policyholder data is collected, strong safeguards under the DPDP Act, 2023, are essential to prevent misuse.

To make the Insurance Bill 2025 truly effective and address existing concerns, supporting steps beyond the law are needed to ensure its goals are achieved in practice.

• Provide adequate capital to LIC and public insurers so they can compete and continue rural and social coverage.
• Enforce data localisation, strict DPDP Act compliance, and penalties for data breaches.
• Permit life + non-life licences and lower capital requirements to encourage new and innovative insurers.
• Make IRDAI’s complaint and ombudsman systems faster, simpler, and more accessible.

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