By Adiiti Aggarwal

Figure 1: Visual Representation of Insurance Security Photo by Vlad Deep (@vladdeep) / Source: Unsplash

Introduction and Background

Currently, the Indian insurance industry is at a critical point in its evolution. It has many opportunities for growth, but its global overall positioning is poor. The rate of insurance coverage in India was only 4.2 percent (in 2021), compared with a world average of 7 percent. The amount of money spent on insurance in India was $91 per capita, while the world average was $874 per capita. The Indian insurance market is skewed to favour life insurance products, which represented 76 percent of the overall market. In contrast, the worldwide market is largely composed of non-life insurance products (56.3 percent).

In order to close the existing gaps and to realise the vision of “Insurance For All by 2047” the Government of India undertook a detailed performance review of the insurance sector. In February 2024, as part of the review process, the 66th Report of the Standing Committee on Finance recommended structural changes to the existing regulatory framework for the insurance sector (including, but not limited to, Composite Licensing and lowering of Capital Requirements for Micro-insurance). In December 2024 the government issued the 7th Report Action Taken Report and accepted 16 of the 19 major recommendations made by the Committee, thereby paving the way for the introduction of the The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025.

Timeline

• Feb 6, 2024 Standing Committee (66th Report) proposes Composite Licensing & Differential Capital.
• Dec 6, 2024 Govt. accepts major reforms in Action Taken Report (7th Report).
• Dec 16-17, 2025 Bill introduced and passed by both Lok Sabha and Rajya Sabha.
• Dec 20, 2025 Received Presidential Assent; Enacted as the Sabka Bima Sabki Raksha Act, 2025.
• April 2026 (Target) Transition to Risk-Based Capital (RBC) Framework.

Objectives

The primary goal of this Bill is to make the current statutory environment for the Insurance Act 1938, the LIC Act 1956 and the IRDA Act 1999 more contemporary by building a greater competitive and inclusive insurance marketplace. The following objectives contribute to this goal:

1. To provide increased access to available funds/Capital and assistance in meeting the approximately ₹40,000 to ₹50,000 crore capital need annually.
2. To increase insurance penetration into rural and low-income populations through the development of Micro Insurance.
3. To simplify and expedite the process of obtaining Regulatory Approval while broadening the definition of insurance intermediaries.

Key Provisions

Composite Licensing: The amended Insurance Act, 1938 has eliminated the legal separation between general and life insurance so that a single business entity could sell both life and general insurance products, thus providing synergy and operational cost reductions.

100% Foreign Direct Investment (FDI) & Re-insurance Incentives: FDI limits in Indian insurance companies were raised from 74% to 100%. In addition, to aid in attracting foreign investors, the minimum required Net Owned Fund (NOF) for Non-life Re-insurers has been reduced from ₹5,000 crore to ₹1,000 crore.

Differentiated Capital for Niche Players: This provides for a unique capital framework for different types of businesses and replaces the fixed ₹100 crore amount with unlimited capital levels which will help Micro-insurers, Co-operatives and Captive Insurers (companies that only insure their parent company) penetrate the rural market and provide coverage in targeted niches.

Easier Doing Business: By allowing for perpetual Certificates of Registration for intermediaries (previously required an annual renewal) and significantly increasing the amount of shares that can be transferred without needing approval from the IRDAI from 1% to 5%, it will improve the ease of doing business in insurance. The inclusion of Born-in-the-wax Intermediaries (Managing General Agents) in the definition of Intermediaries will also broaden the definition of Intermediary from only including Agent and Brokers.

Policyholder Education and Protection Fund: This is a statutorily established fund with the IRDAI as its custodian, it will be funded from penalties imposed on insurance companies and grants to support educating policyholders and provide funds for the return of unclaimed amounts.

Policy Implications

Market Competitiveness: The introduction of 100% Foreign Direct Investment (FDI) will attract the largest and most sophisticated global insurance providers with advanced technology and risk management practices.

Targeting the “Missing Middle”: The Bill eliminates the barriers to entry to capital for cooperatives and thus increases product offerings to the 30% of citizens who currently lack Health Insurance.

Operational Efficiency: The expansion of the Authority’s powers enables a transition to a “Use and File” environment where products can be developed more quickly for specific, seasonal risks such as flooding or cyclones.

Risk-Based Supervision: The ability to navigate towards a Risk-Based Capital (RBC) framework by April 2026 allows for a capital requirement that is directly related to the actual risk of each insurance company and hence a more effective use of available capital.

Collaboration and Cost Reduction: Composite Licensing’s introduction will be beneficial for Insurer’s Management Expenses (Management Expenses) as it provides Insurance Companies with the ability to utilize one Agency Force and a common IT Platform to sell both Life Products as well as Health Products, thus reducing total costs of operation as well as potentially decreasing rates charged for the end consumer.

Policy Recommendations

GST Rationalization: To ensure those in the lower-income segment can afford Health Insurance and Term Life Insurance products, the government should look at reducing the GST rate of 18% for Senior Citizens on both products.

Implementation of E-Challan Enforcement: With over 56% of the world’s vehicles being uninsured, it is essential for authorities to use the data from the IIB and the mParivahan for automating the enforcement of Insurance policies.

Formalisation of Policy Roadmap: The ATR recommends creating a formal “White Paper” outlining a defined Long-Term Strategy for achieving the goal of “Insurance for All by 2047”.

Formation of an Inter-Ministerial Working Group: A Working Group comprising of representatives from IRDAI, The National Health Authority, and The Health Ministry must be created with the primary goal to address the “Missing Middle” population with Ayushman Bharat support on a paid basis.

Conclusion

After years of slowly and methodically reforming the insurance industry, in 2025, India’s government will complete the process of reforming and liberalizing the entire sector with the introduction of the Sabka Bima Sabki Raksha Bill. The Bill allows for nearly complete global ownership of an insurance business and has made a major policy change that removes all capital restrictions from the insurance industry in India. The success of the Bill’s reforms will ultimately be based on how well the industry transitions to the new Risk Based Capital (RBC) system in 2026 and how aggressively the government continues to reduce entry-level taxes like GST, so that insurance becomes part of the everyday financial life of the average Indian as opposed to just a luxury item.

References

Cabinet approves the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025 – Press Information Bureau (PIB) https://www.pib.gov.in/PressReleseDetail.aspx?PRID=2206011&reg=3&lang=1

The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025 (As Introduced) – Digital Sansad (Lok Sabha Repository) https://sansad.in/ls/legislation/bills 

66th Report: Performance Review and Regulation of Insurance Sector (2023-24)- Standing Committee on Finance, Lok Sabha Secretariat https://sansad.in/getFile/lsscommittee/Finance/17_Finance_66.pdf?source=loksabhadocs

7th Report: Action Taken by Government on the Recommendations contained in the 66th Report – Standing Committee on Finance, Lok Sabha Secretariat https://sansad.in/getFile/lsscommittee/Finance/18_Finance_7.pdf?source=loksabhadocs

 The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025 (Bill Track)  PRS Legislative Research https://prsindia.org/billtrack/the-sabka-bima-sabki-raksha-amendment-of-insurance-laws-bill-2025

Annual Report 2024-25 – Insurance Regulatory and Development Authority of India (IRDAI)  https://irdai.gov.in/annual-reports

Synopsis of Debates – Lok Sabha, Digital Sansad https://sansad.in/ls/debates/synopsis

About the author

Adiiti Aggarwal is a Master’s student in Economics at Shiv Nadar University, currently interning at the Jindal Policy Research Lab. She holds a Bachelor’s degree in Business Economics from the University of Delhi. Her research interests include development Economics, public policy, sustainable development, and governance.