Union Cabinet Nod to Insurance Reforms May Extend Choices and Coverage to Insurance Buyers

The Union Cabinet on December 12, 2025, approved the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025, paving the way for its introduction in Parliament. The Bill seeks to amend the Insurance Act, 1938, the LIC Act, 1956, and the Insurance Regulatory and Development Authority (IRDAI) Act, 1999.

It proposes significant changes to foreign investment norms, reinsurance regulations, and governance standards in the insurance sector. The move is expected to reshape the regulatory framework for insurers and intermediaries.

Key Proposal to Increase FDI Limit

One of the major provisions of the Bill is the enhancement of the foreign direct investment (FDI) ceiling in insurance companies to 100% from the current 74%. Under the new framework, foreign investors will be allowed full ownership of insurance companies, subject to conditions imposed by IRDAI.

Governance and compliance norms will remain unchanged to ensure regulatory oversight. The measure aims to attract more insurers to the Indian market, increasing product diversity for policyholders.

Changes in Reinsurance Regulations

The Bill also introduces amendments to reinsurance norms to encourage foreign participation. The Net Owned Funds (NOF) requirement for foreign reinsurers has been reduced from ₹5,000 crore to ₹1,000 crore.

This change is intended to facilitate the entry of global reinsurers into India, enabling insurers to manage large-scale and specialised risks more effectively. Greater reinsurance capacity could improve claim settlement processes and broaden coverage options for consumers.

Enhanced Powers for IRDAI

The proposed legislation seeks to strengthen the authority of the Insurance Regulatory and Development Authority of India (IRDAI). It grants the regulator power to recover wrongful gains made by insurers or intermediaries.

The threshold for seeking regulatory consent for share transfers will be raised from 1% to 5%, simplifying compliance requirements. Additionally, the Bill introduces a standard operating procedure for rule-making, ensuring uniformity in penalty regulations and improving accountability across the insurance industry.

Flexibility for LIC and Excluded Proposals

The amendments provide greater operational flexibility to the Life Insurance Corporation of India (LIC). LIC will be able to open zonal offices without government approval and restructure foreign operations in line with overseas regulations.

However, several proposals from earlier drafts, such as composite licensing for life and non-life insurance, reduced minimum capital requirements, and multi-insurer product distribution by agents, have been excluded from the final Bill. The current framework for distribution and licensing will remain unchanged.

Read More: Government Considers Measures to Manage Rising Health Insurance Premiums.

Conclusion

The Sabka Bima Sabki Raksha Bill represents a significant overhaul of India’s insurance laws. By raising the FDI limit to 100%, easing reinsurance norms, and empowering IRDAI, the legislation aims to modernise the sector and attract global players.

While some earlier proposals have been dropped, the approved changes are expected to improve operational efficiency and expand product offerings. The Bill will be introduced in Parliament during the ongoing Winter Session, which concludes on December 19, 2025.

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