- Context (IE): The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025, aims to modernise India’s insurance framework in line with Insurance for All by 2047.
- It has amended the Insurance Act 1938, the LIC Act 1956, and the IRDAI Act 1999 to expand the insurance coverage.
| Status of Insurance Sector in IndiaInsurance Market (Global): India’s overall insurance market is ranked the 10th largest in the world in terms of total premium volume.Life Insurance Sector: India also ranks 10th globally in the life insurance business.LIC Global Ranking: The Life Insurance Corporation of India (LIC) is ranked among the 3rd strongest insurance brands globally according to Brand Finance’s 2025 report.Market Size: The Indian insurance market was valued at approximately USD 303.3 billion (₹25 lakh crore) in 2024 and is expected to grow substantially in the coming decade.Penetration: Insurance penetration in India stood at around 3.7% of GDP (latest for FY24), with life insurance accounting for ~2.8% and non-life for ~0.9%. |
Need for the New Insurance Bill
- Low Insurance Penetration: Insurance penetration in India is only ~4% of GDP, compared to the global average of ~7%, leaving large populations uninsured.
- Capital & Investment Deficit: Long-term insurance requires deep capital, but restricted inflows limited expansion. E.g. Raising FDI to 100% can attract global insurers into a market with a 1.4 billion population.
- Reinsurance Concentration Risk: India’s reinsurance market is dominated by GIC Re (General Insurance Corporation of India Reinsurance), limiting risk diversification.
- Weak Consumer Protection: Earlier regulatory tools had limited deterrence against unfair practices.
Key Provisions of the Bill
- FDI Liberalisation: Raises insurance FDI cap from 74% to 100%, enabling global capital inflows.
- Reinsurance Entry: Cuts Net Owned Funds for foreign reinsurers from ₹5,000 crore to ₹1,000 crore.
- Equity Flexibility: Raises IRDAI approval threshold for share transfer from 1% to 5%.
- Autonomy: Allows LIC to open zonal offices and restructure overseas operations without prior approvals.
- IRDAI Empowerment: Grants powers for disgorgement, penalties and one-time registration.
| Disgorgement: A regulatory enforcement tool that requires entities to return unlawfully gained profits, preventing unjust enrichment and deterring violations. |
Key Issues Within the Bill
- Composite Licensing: No provision allowing insurers to operate across life and non-life segments.
- Entry Barriers: ₹100 crore minimum paid-up capital for insurance companies (life and general insurers) and ₹200 crore for reinsurance companies, remaining unchanged under the Bill
- Limited Inclusion: Missed opportunity for niche, regional, health-only, or micro-insurers.
- Product Silos: No permission for bundled insurance or cross-financial product distribution.
- Risk Innovation: Absence of a framework for captive insurance for large corporations.
| Captive Insurance: A risk-management arrangement where a company creates its own subsidiary insurer to cover internal risks and reduce dependence on external insurance markets. |
Way Forward
- Composite Licensing: Allow single insurers to operate across life, health and general insurance; E.g. global markets like the UK and Australia permit composite insurers.
- Capital Rationalisation: Reduce minimum paid-up capital to enable niche and regional players; E.g. micro-insurance models in ASEAN markets expanded coverage among low-income households.
- Inclusive Insurance: Promote health-only, micro and rural insurers to reach underserved groups; E.g. PMFBY and Ayushman Bharat show targeted schemes improve last-mile coverage.
- Regulatory Safeguards: Strengthen IRDAI’s supervision alongside liberalisation to protect policyholders; E.g. SEBI-style disgorgement powers ensure market discipline.
