Recently, the Union Cabinet approved the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025, clearing the way for its introduction in Parliament.

About Insurance

• Definition: Insurance is a form of risk management in which a person or business pays a premium to be protected against financial loss from uncertain events such as accidents, illness, or damage.
• Considered as the Backbone of the Economy: As it enables higher risk-taking leading to innovation and investment, and ultimately, helps reduce poverty by protecting vulnerable individuals from falling into debt traps due to unexpected expenses.

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

• Scope of Amendments: The Bill proposes changes to the Insurance Act, 1938, the Life Insurance Corporation Act, 1956, and the Insurance Regulatory and Development Authority of India Act, 1999.
• Stated Objectives: It aims to modernise the insurance framework, expand insurance coverage, and strengthen regulatory oversight.

Key Provisions of the Insurance Bill

• Increase in Foreign Direct Investment (FDI) Limit: The Bill proposes raising the FDI limit for insurance companies from 74% to 100%.
  • The reform aims to attract stable and sustainable foreign investment.
  • It is expected to facilitate technology transfer, enhance insurance penetration, and strengthen social protection.
  • Global insurance companies can introduce superior underwriting models and AI tools to assess risk and calculate premiums, which are currently lacking in India.
  • The move aligns with the goal of ‘Insurance for All by 2047’.
  • India currently has about 70 insurers, compared to nearly 10,000 globally, indicating large potential capital inflows.
• Strengthening IRDAI: The Insurance Regulatory and Development Authority of India (IRDAI) is being granted powers similar to SEBI.
  • This includes the power of disgorgement, which allows IRDAI to retrieve wrongful gains and return it to customers. 
  • The threshold for IRDAI approval for transfer of paid-up equity capital will be raised from 1% to 5%.
  • A one-time registration system for insurance intermediaries is proposed.
  • The Bill proposes the incorporation of a formal SOP for regulation-making within the Act, ensuring a more structured and predictable rule-making process. 
  • Additionally, the Bill introduces clear criteria for levying penalties, making enforcement more rational, transparent, and consistent across cases.
• Greater Autonomy for LIC: The Bill proposes empowering the Life Insurance Corporation of India (LIC) to establish new zonal offices without prior government approval.
• • It will be allowed to restructure and align its overseas operations in line with the laws and regulatory norms of the countries in which it operates.
  • This flexibility will help LIC adapt more quickly to foreign compliance requirements, strengthen its global presence, and reduce delays caused by navigating multiple layers of approval back home.

Key Omissions in the Bill

• Absence of Composite Licensing: The Insurance Act, 1938, mandates strict separation between life and general insurance businesses.
  • Significance of Composite Licence: A composite licence would have allowed insurers to operate across life and non-life segments.
    • It would have enabled integrated and bundled insurance products under one entity.
    • Such licences are seen as aligned with global best practices.
  • Implications of Omission: The exclusion retains long-standing structural compartmentalisation.
    • It is viewed as a missed opportunity for competition, innovation, and customer convenience.
• Capital Norms: Currently, the law mandates a minimum paid-up capital of Rs 100 crore for insurers and Rs 200 crore for reinsurers, thresholds that have long been criticised as being too high and prohibitive, especially for specialised, regional, or niche players looking to enter the market.
  • There was hope that this barrier would be lowered.
  • However, this omission restricts new entry, product diversity, and the expansion of insurance to underserved segments such as rural areas, gig workers, and low-income households.
• Captive insurance: Captive insurers are wholly owned insurance subsidiaries created to insure the risks of their parent companies. 
  • They are widely used globally by major corporations to manage complex exposures, lower insurance costs, and exert greater control over underwriting and claims.
  • The Bill does not include provisions allowing large corporations to set up captive insurance entities.
  • This omission limits the modernisation of corporate risk management practices in India.
• Distribution of Other Financial Products: Allowing insurers to sell mutual funds, loans, or credit cards.

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Conclusion

The bill is summarised as a “mixed bag,” offering progressive steps such as 100% FDI and a stronger IRDAI, but missing opportunities in composite licensing, capital requirements, and captive insurance.

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