Cabinet approves 100% FDI in insurance, paving way for major sector overhaul

The Union Cabinet has approved a landmark reform in India’s insurance industry by allowing 100% foreign direct investment (FDI) in insurance companies. This major policy shift is aimed at attracting higher global capital inflows, enhancing competition, and significantly improving customer-centric services across the sector.

The decision marks a crucial step in the government’s broader financial sector reforms and is expected to reshape how insurance businesses operate in India.

Insurance Laws (Amendment) Bill 2025: What’s changing

Bill likely to be tabled in Winter Session

The Insurance Laws (Amendment) Bill 2025 is expected to be introduced during the ongoing Winter Session of Parliament, which concludes on December 19. A Lok Sabha bulletin has already listed the bill among key legislative items scheduled for discussion.

Proposal first announced by the Finance Minister

Finance Minister Nirmala Sitharaman had earlier proposed increasing the foreign investment cap in insurance from 74% to 100%, positioning the reform as part of a comprehensive effort to modernise India’s financial ecosystem and attract long-term overseas capital.

More global capital for a rapidly expanding insurance market

FDI inflows so far

India’s insurance sector has already attracted nearly Rs 82,000 crore in foreign direct investment. With the cap now lifted, policymakers expect a fresh wave of global investors to enter the market.

Industry welcomes the move

According to Kamlesh Rao, MD and CEO, Aditya Birla Sun Life Insurance,

"Opening up the sector to 100% FDI will certainly be a welcome and progressive step – Increased foreign participation can bring fresh thinking, global product innovation, digital capabilities and new service models that ultimately enhance the customer experience. Any move that broadens the industry’s innovation horizon is positive for long-term penetration."

Industry leaders believe the reform will accelerate innovation, improve digital adoption, and help insurers scale faster in underserved markets.

Key structural reforms proposed in the bill

Higher FDI limit and easier entry

The bill proposes:

• Raising the FDI cap to 100%

• Reducing paid-up capital requirements, making it easier for new insurers to enter the market

Composite licence system

A proposed composite licensing framework would allow insurance companies to offer multiple products—life, health, and general insurance—under a single licence, improving operational efficiency.

Greater autonomy for LIC

The government also plans to grant the LIC board more operational flexibility, especially in:

• Opening new branches

• Hiring manpower

• Improving service delivery

Amendments to legacy laws

To support the reforms, amendments to the Insurance Act, 1938, and the IRDAI Act, 1999, have been proposed to better align regulations with modern industry needs.

Boost for policyholders and the wider economy

Better services and stronger protection

According to the government, increased competition will lead to:

• Improved insurance products

• Faster claim settlement processes

• Enhanced consumer protection

Employment and economic impact

The reforms are also expected to:

• Create new jobs

• Encourage skill development

• Improve efficiency across the insurance value chain

Push towards ‘Insurance for All by 2047’

The decision aligns closely with the government’s long-term vision of achieving ‘Insurance for All by 2047’. By easing regulations, increasing capital availability, and encouraging innovation, the reforms aim to significantly improve insurance penetration across India.

While the Insurance Act of 1938 will continue to remain the sector’s foundational law, the upcoming amendments seek to modernise the framework for a fast-evolving and technology-driven insurance landscape.

Conclusion

The Cabinet’s approval of 100% FDI in insurance marks one of the most significant reforms in India’s financial sector in recent years. By unlocking global capital, encouraging innovation, and increasing competition, the move is expected to strengthen insurers, benefit policyholders, and support the broader economy. As the Insurance Laws (Amendment) Bill 2025 moves through Parliament, the sector is poised for a transformative phase aligned with India’s long-term growth and inclusion goals.