Editorial: Reforming India’s insurance sector

Government’s move to raise FDI limit in the insurance sector to 100 per cent is welcome, but it must address genuine concerns with openness and fairness

India has an abysmally low penetration of insurance, be it life or health coverage. For many decades, the insurance sector was a state monopoly before it was opened up to the private sector in the early 2000s through the Insurance Regulatory and Development Authority (IRDA). While there has been an improvement in the insurance coverage post-liberalisation, a vast majority of the people are still unserved. Insurance is a capital-intensive sector with a long gestation period before profitability. Indian promoters often struggle to infuse capital repeatedly during this phase. At present, the overall insurance penetration stands at 3.7 per cent of GDP, with life insurance accounting for 2.8 per cent and non-life at just 1 per cent. The personal retail health policies cover only around 5 crore people in the country. Against this backdrop, the government’s latest move to raise the FDI (foreign direct investment) limit in the insurance sector to 100 per cent, from the existing 74 per cent, is a welcome development that is expected to attract more capital, improve competition and increase insurance penetration by making policies more affordable. However, there are certain genuine concerns that need to be addressed by the government with openness and fairness. The All India Insurance Employees Association has voiced apprehension over potential hostile takeover bids if the existing foreign partners of Indian private companies decide to operate independently. It is here that IRDAI’s role becomes crucial. The regulatory body will have to take a proactive approach to address these fears. It is laudable that the Bill proposes to empower the regulator to disgorge wrongful gains made by insurers and distribute them among affected policyholders.

The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025, passed by Parliament, will hopefully help in reforming the sector to meet the country’s goal of “Insurance for all” by 2047. The Finance Ministry has proposed amending various provisions of the Insurance Act, 1938, including raising the FDI limit, permitting the merger of a non-insurance company with an insurance company, and creating a dedicated policyholder fund. As part of the safeguards, the new legislation stipulates that at least one among the top management, like the Chairman, Managing Director, or CEO, must be an Indian citizen. More capital flow would spur healthy competition, leading to better deals for customers, more sophisticated products, and faster and more efficient claims processes. The proposed amendment primarily focuses on promoting policyholders’ interests, enhancing their financial security, and facilitating the entry of additional players into the insurance market, thereby driving economic growth and employment generation. Such changes will help enhance the efficiency of the insurance industry, enable ease of doing business, and enhance insurance. The Insurance Act of 1938 serves as the principal Act to provide the legislative framework for insurance in India. It provides the framework for the functioning of insurance businesses and regulates the relationships among insurers, their policyholders, shareholders, and the regulator.

---