Opinion In the insurance market, avoid over-regulation
India's insurance density, primarily driven by life insurance, is merely 10.6 per cent of the world's average. The Sabko Bima Sabko Raksha bill is an attempt to address the gaps.
The key will be to ensure that the regulator’s increased powers do not stifle the sector’s growth. On Tuesday, the Lok Sabha passed the Sabko Bima Sabko Raksha (Amendment of Insurance Laws) Bill, 2025. It seeks to reform India’s insurance framework through changes in three Acts: The Insurance Act of 1938, the Life Insurance Corporation Act of 1956, and the Insurance Regulatory and Development Authority of India (IRDAI) Act of 1999. The move is expected to be a step towards achieving the IRDAI’s goal of “Insurance for All by 2047”.
India has seen an improvement in insurance metrics over the past decade. For instance, the number of insurers has increased from 54 in 2014-15 to 74 now. Similarly, insurance density — the average insurance premium paid per person in a year — has gone up from $55 to $97 over the same period. Insurance penetration — measured as the percentage of insurance premiums to GDP — has gone up from 3.3 per cent of GDP to 3.7 per cent. However, the country is still a deeply underserved insurance market. India’s insurance density, primarily driven by life insurance, is 0.6 per cent of the world average. Most of the world’s top 25 insurance companies do not operate in India. This Bill is an attempt to address these gaps. Its standout feature is to increase the limit for Foreign Direct Investment (FDI) in Indian insurance companies from 74 per cent to 100 per cent. The hope is that this move will attract more foreign investment, facilitate technology transfer and increase the penetration of insurance and social protection. To deepen the market, apart from further liberalising the FDI norms, the Bill also provides sops for foreign reinsurers by reducing the requirement of their “net owned funds” (including equity capital and free reserves) from Rs 5,000 crore to Rs 1,000 crore. The easing of norms could draw smaller and new insurers to the Indian market, boosting competition and improving service.
The bill also bolsters the IRDAI’s role. The punitive powers it provides to the agency are akin to those of the SEBI (the securities regulator). For instance, the regulator will now have the authority to disgorge wrongful gains made by insurers or intermediaries. These steps are welcome. The key will be to ensure that the regulator’s increased powers do not stifle the sector’s growth.
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