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Informist, Tuesday, Dec. 16, 2025

 

NEW DELHI – Finance Minister Nirmala Sitharaman Tuesday introduced the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025, seeking to revamp India's insurance framework, proposing a host of changes to the Insurance Act, 1938, the Life Insurance Corporation Act, 1956, and the IRDAI Act, 1999, with the aim of modernising the sector, widening and deepening coverage and better regulatory oversight. Most importantly, the bill proposes raising the foreign direct investment limit in the insurance sector from 74% to 100%, as proposed in the Budget for 2025-26 (Apr-Mar).

 

The hike in FDI limit will help in attracting huge investment in the sector, enabling insurers to access long-term capital, advanced risk-management options, among other operational expertise that will help expand insurance coverage and improve product managament, claims settlement and customer service.

 

The bill also proposes incentives to foreign reinsurers, to facilitate entry of more re-insurers, building greater reinsurance capacities in the country. The bill provides for the establishment of the Policyholders' Education and Protection Fund to protect policyholders' interests. This fund will receive money from grants, donations, and sums realised from penalties imposed by the authority.

 

The bill proposes stricter safeguards on utilisation of life insurance funds and other specified insurance business funds, particularly for dividend payouts, bonuses, and servicing of debentures, according to the copy of bill shared in Parliament. Life insurers or other notified classes of insurance will not be permitted to directly or indirectly use any portion of the insurance fund for declaring dividend to shareholders.

 

They also cannot pay bonuses to policyholders, or service debentures, except from a surplus disclosed through an actuarial valuation, it said. Such surplus must be reflected in the valuation balance sheet in a format prescribed by the Insurance Regulatory and Development Authority of India and submitted as part of statutory returns, it added. 

 

The bill further bars insurers from increasing surpluses by transferring amount from reserve funds, unless such contributions have already been recognised as revenue for the relevant insurance class prior to valuation. 

 

The bill also proposes a cap on payment made from the surplus towards debentures. Payments, including interest, cannot exceed 50% of the disclosed surplus, it said. Additionally, interest paid on debentures is capped at 10% of the surplus, unless such interest is adjusted against interest credited to the insurance fund while determining the valuation assumptions. 

 

The insurance amendment bill also proposes amendments to give more enforecement powers to IRDAI, including the authority to disgorge wrongful gains made by insurers or intermediaries. This will empower IRDAI to take regulatory action similar to the Securities and Exchange Board of India, which can recover illegally earned profits from violators.

 

It proposes a one-time registration system for insurance intermediaries, removing the need for repeated approvals and simplifying compliance. It also proposes hiking the threshold for requiring IRDAI's approval for the transfer of paid-up equity capital in insurance companies to 5% from 1%, allowing for smoother share transfers and reducing regulatory burdens.

 

Other amendments proposed in the bill include introduction of a formal standard operating procedure for IRDAI for regulation-making and clear criteria for levying penalties to make enforcement more rational, transparent, and consistent across cases. 

 

Amendments to the LIC Act is to give greater operational freedom, allowing it to function with more agility and independence. The bill proposes to empower LIC to set up new zonal offices without requiring prior government approvals, enabling faster expansion, improved administrative efficiency, and better regional oversight. Additionally, LIC will be allowed to restructure and align its overseas operations in line with the laws and regulatory norms of the countries in which it operates.

 

While the bill has been in the works for a while and was widely expected to be taken up in the Budget session of Parliament earlier in the year, it was postponed owing to the many nuances in terms of operational changes suggested in the bill. The Lower House will now discuss the bill before passing it, followed by the same process being repeated in the Upper House. End

 

Reported by Priyasmita Dutta

Edited by Akul Nishant Akhoury

 

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