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Informist, Wednesday, Dec. 17, 2025

 

--Parliament passes insurance amendment bill allowing 100?I in sector 

 

NEW DELHI – The Rajya Sabha Wednesday passed the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025, which will help to revamp India's insurance framework with a host of changes to The Insurance Act, 1938, The Life Insurance Corporation Act, 1956, and The Insurance Regulatory and Development Authority of India Act, 1999, to modernise the sector, widen and deepen coverage, and improve regulatory supervision.

 

Importantly, the bill makes way for raising the foreign direct investment limit in the insurance sector to 100% from 74%, as proposed in the Budget for the financial year 2025-26 (Apr-Mar). The Lok Sabha had passed the bill Tuesday.

 

The increase in FDI limit will help to attract huge investment in the sector, enabling insurers to access long-term capital and advanced risk-management options, among other operational expertise, that will help to expand insurance coverage and improve product management, claims settlement, and customer service. According to Finance Minister Nirmala Sitharaman, the insurance sector needs capital and opening the sector up for higher FDI will help to address this need. The government also wants the insurance regulator to be robust and to improve ease of compliance, she had said in the Lok Sabha.

 

Parliament's nod to the Insurance Amendment Bill also paves the way for raising the FDI limit in the pension sector to 100%. According to The Pension Fund Regulatory and Development Authority Act, 2013, foreign ownership of pension funds is capped at 26% or the prescribed limit for insurance companies, whichever is greater. Currently, the FDI limit in pension funds is set at 74%, in line with the insurance sector.

 

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

 

The bill also introduces stricter safeguards on the use of life insurance funds and other specified insurance business funds, particularly for dividend payouts, bonuses, and servicing of debentures. Life insurers and other notified classes of insurers 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. Such surplus must be reflected in the valuation balance sheet in a format prescribed by the IRDAI and submitted as part of statutory returns, as per the bill.

 

The bill further bars insurers from increasing surpluses by transferring amounts 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 payments made from the surplus towards debentures. Payments, including interest, cannot exceed 50% of the disclosed surplus. 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 gives the IRDAI greater powers of enforcement, including the authority to order insurers or intermediaries to disgorge wrongful gains made by them. This will empower it to take regulatory action similar to the Securities and Exchange Board of India, which can recover profits illegally earned by violators.

 

It allows a one-time registration system for insurance intermediaries, removing the need for repeated approvals and simplifying compliance. It also allows increasing the threshold for requiring the 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 in the bill include the introduction of a formal standard operating procedure for IRDAI for making regulations and clear criteria for levying penalties to make enforcement more rational, transparent, and consistent.

 

Amendments to the LIC Act are to give the corporation greater operational freedom, allowing it to function with more agility and independence. The bill empowers LIC to set up new zonal offices without seeking prior government approval, enabling faster expansion, improved administrative efficiency, and better regional supervision. 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 because of the many nuances in terms of operational changes suggested in the legislation.  End

 

Reported by Priyasmita Dutta

Edited by Rajeev Pai

 

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