India’s parliament approves bill to raise foreign direct investment in insurance to 100%

NEW DELHI: India’s parliament on Wednesday approved a bill to raise foreign direct investment in the insurance sector to 100% from 74%, a move that will help insure more people in the world’s most populous country.

The increase in the FDI limit could boost investments and improve insurance penetration in the country, which stood at 3.8% of GDP in 2024, according to research firm Swiss Re Institute.

“The amendments are expected to further strengthen job creation, skill development and formal employment,” Finance Minister Nirmala Sitharaman said, while presenting the legislation in the lower house of the parliament for approval.

India’s insurance sector has about 74 firms, including joint venture with foreign players such as Prudential Plc, Sun Life Financial and AIG. Out of these 74 insurance companies, four have foreign investment of 74%, Sitharaman said.

“The higher FDI limit will encourage long-waiting foreign insurers to invest in India - especially those keen to bring deep global capabilities in risk and technology, along with capital,” said Saurabh Mishra, a partner at consultancy firm Kearney.

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The legislation titled ‘Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act of 2025’ does not include an earlier draft proposal for a unified or a “composite” license that would have allowed insurers to provide life, general and health insurance under a single entity.

In India, life insurance companies cannot sell products such as health insurance, while general insurers are allowed to only sell products ranging from health to marine insurance.

The unexpected dropping of the composite license may force some of those insurers who had been considering plans to enter other segments of insurance to rethink their plans, said Mishra.

Separately, India will allow merger of an insurance company with a non-insurance firm if the combined entity is in the business of insurance. The bill also enables the creation of a dedicated fund for policyholders’ education and to protect their interests.

LIMITS ON COMMISSION

The act now gives legislative powers to the regulator, Insurance Regulatory and Development Authority of India (IRDAI), to set limits on commission paid to insurance agents, rather than relying on executive powers.

It also empowers the regulator to disgorge any wrongful gains made by an insurance company in violation of its rules.