Big reset for insurance sector as govt readies sweeping reform Bill

Of the world’s top 25 insurance companies, nearly 20 do not yet operate in India. The new framework could encourage global firms to enter the market, while foreign partners in existing joint ventures may choose either to exit or to acquire their Indian partners and establish fully owned subsidiaries. “We could see India moving towards a future with 1,000 insurers in the next decade,” said the CEO of an insurance company.

100% FDI

The proposed full foreign ownership will bring in the capital that India’s insurance sector needs to expand its reach, improve products and upgrade services. The government hopes this reform will help raise India’s insurance penetration, which stood at 3.7 per cent in 2023–24, down from 4 per cent in 2022–23. By comparison, global penetration is around 7 per cent.

There is little doubt that raising the FDI limit to 100 percent marks a decisive step toward globalising India’s insurance sector. The reform is expected to draw larger pools of foreign capital, spur product innovation, and intensify competition in underwriting, risk management, and customer experience. Crucially, it will also bring access to global best practices—from sophisticated underwriting models and digital claims platforms to advanced risk-assessment tools—enhancing the industry’s resilience and service quality. Together, these shifts lay the groundwork for a more customer-centric and technologically robust insurance ecosystem. As Balachander Shekhar, Co-founder of RenewBuy, noted, the shift to full foreign ownership, composite licences and rationalised capital norms together open the door for new participants to reach underserved markets.

“India’s biggest barrier to insurance adoption is still affordability. With higher FDI, insurers will be able to expand products, improve underwriting, and strengthen distribution,” said Hanut Mehta, CEO and Co-Founder at BimaPay Finsure.

Entry norms to be eased

The Bill is expected to reduce the net owned funds requirement for foreign reinsurers from Rs 5,000 crore to Rs 500 crore—a long-standing demand of global reinsurance companies. This easing of norms is intended to draw smaller and new-age reinsurers to India, broadening competition in a segment currently dominated by public sector GIC Re.

Composite licensing

The Bill proposes a unified framework for a unified market. Under the current Insurance Act, 1938, insurers are restricted to operating strictly within their designated segments—life insurers cannot sell non-life products, and general insurers are barred from underwriting life policies. Composite licences are not permitted now.

The proposed Bill seeks to overturn this structure by introducing composite licensing, enabling a single insurer to offer both life and non-life products. This reform would dismantle the long-standing compartmentalisation of the sector and allow insurers to deliver integrated solutions, such as bundled life, health, and general coverage. Given these advantages, many established players are expected to pursue composite licences once the framework is in place.

Composite licensing marks a strategic move away from rigid product divisions toward holistic financial protection. It empowers insurers to offer seamless, unified solutions that match evolving customer expectations for integrated, friction-free insurance experiences.

Reduced capital norms & new entrants

The Bill may also reduce the minimum capital requirements for insurers—from the current Rs 100 crore for insurers and Rs 200 crore for reinsurers—thus lowering the barrier to entry. This inclusion-first measure aims to encourage specialised and regional players to enter the sector and address gaps in rural, informal and emerging markets. By widening participation, the reforms support the broader goal of achieving “insurance for all” by 2047.

Captive insurance entities

Allowing large corporations to set up captive insurance entities is among the key proposed changes, enabling them to manage their own risk exposures more efficiently. This could substantially strengthen self-insurance capabilities and give companies far greater control over underwriting and claims.

At present, insurers are subject to uniform capital requirements irrespective of their size or business model. The Bill seeks to introduce differential capital norms based on scale and category, providing firms with greater flexibility and encouraging a more diverse and competitive insurance marketplace.

One-time registration, multi-seller flexibility

The Bill is also likely to propose a one-time registration system for insurance intermediaries, eliminating periodic renewals and easing regulatory friction. Under the new framework, registrations—including those for corporate agents and brokers—would become perpetual, with intermediaries required only to pay annual fees prescribed by the IRDAI. At present, registrations are valid for three years and must be renewed upon expiry.

The Bill is also expected to allow individual insurance agents to sell policies from multiple insurers by removing the present restriction that limits them to one life and one general insurer. This flexibility will expand distribution channels, strengthen competition, and enhance customer choice.