Amendment of Insurance Laws Bill, 2025 (Sabka Bima Sabki Raksha)

Post Date: 17 December 2025

Syllabus:
GS-II | Governance 🏛️
GS-III | Economy & Financial Sector 💼

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📍 Context

The Union Cabinet has approved the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025, aimed at overhauling India’s insurance regulatory framework to improve coverage, investment, and governance.

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🔎 About the Bill

The Bill proposes amendments to three core legislations:

• Insurance Act, 1938
• Life Insurance Corporation Act, 1956
• IRDAI Act, 1999

Core Objective:
Modernisation of the insurance sector, wider coverage, enhanced competition, and stronger regulatory oversight in line with Insurance for All by 2047.

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🧩 Major Features of the Bill

1️⃣ 100% FDI in Insurance

• Raises FDI cap from 74% to 100% in Indian insurance companies 🌍
• Expected to attract stable, long-term foreign capital
• Supports expansion of insurance penetration and density

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2️⃣ Easing Entry for Foreign Reinsurers

• Net Owned Fund requirement reduced from ₹5,000 crore to ₹1,000 crore
• Encourages entry of more global reinsurers
• Enhances domestic reinsurance capacity
• Reduces dominance of General Insurance Corporation of India (GIC Re)

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3️⃣ Greater Operational Freedom for LIC

• Life Insurance Corporation of India (LIC) can now:
  • Set up new zonal offices without prior government approval
• Enables:
  • Faster expansion
  • Administrative efficiency
  • Improved regional supervision

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4️⃣ Enhanced Powers for IRDAI

• Insurance Regulatory and Development Authority of India (IRDAI) gains stronger enforcement powers ⚖️
• Can disgorge wrongful gains earned by insurers or intermediaries
• Aligns IRDAI’s powers closer to SEBI’s regulatory framework

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5️⃣ One-Time Registration System

• Introduces a single, one-time registration for insurance intermediaries
• Eliminates repetitive approvals
• Simplifies compliance and reduces transaction costs

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6️⃣ Ease of Doing Business Measures

• Threshold for IRDAI approval in transfer of paid-up equity raised from 1% to 5%
• Facilitates smoother share transfers
• Reduces regulatory bottlenecks

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7️⃣ Rationalised Penalty Framework

• Clear and objective criteria for penalties
• Ensures:
  • Transparency
  • Consistency
  • Predictable enforcement

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⚠️ Key Omissions in the Bill

❌ No Composite Licensing

• Insurers still restricted to:
  • Life insurance or
  • General insurance
• Prevents integrated insurance offerings
• Ignores long-standing industry demand for composite licences

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❌ No Relaxation in Minimum Capital Requirements

• Entry norms retained:
  • ₹100 crore for insurers
  • ₹200 crore for reinsurers
• Continues to deter:
  • Small
  • Regional
  • Niche insurers

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❌ Several Earlier Reform Proposals Dropped

• No permission for:
  • Insurers to distribute other financial products
  • Agents to sell policies of multiple insurers
• Limits:
  • Consumer choice
  • Distribution efficiency
  • Revenue diversification

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❌ Silence on Captive Insurance Companies

• No provision for large corporates to set up captive insurers
• Keeps India dependent on offshore or external risk-management structures
• Missed opportunity to deepen domestic risk-management capacity

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🌟 Significance of the Bill

• Major FDI reform: 100% foreign ownership could unlock large capital inflows
• Global best practices: Access to advanced underwriting, digital claims, and risk-assessment tools
• Boost to competition: Increased innovation, efficiency, and customer-centric insurance products
• Governance upgrade: Stronger regulator with clearer enforcement authority

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🌀 IAS Monk Whisper

Insurance is not merely protection against risk; it is a quiet promise of stability that allows economies and individuals to dare, build, and grow.