Sabka Bima Sabki Raksha Bill 2025

Sabka Bima Sabki Raksha Bill 2025

Why in News? 

Recently, the government has tabled the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025 in Parliament, marking a decisive step toward inclusive insurance coverage. The Bill reflects a reform-driven approach, aligning sector liberalisation with the long-term national vision of universal insurance access by 2047.

Need for Insurance Law Reforms in India

• Low insurance penetration and density: India records low insurance penetration compared with peer economies. The market measured 3.7% of GDP in FY24. This figure shows low reach of financial protection in a large economy. The low penetration harms household resilience against shocks.
• Imbalanced product mix and weak non-life cover: The market shows a heavy tilt toward life insurance and weak non-life coverage. Life premiums formed about 2.8% of GDP in FY24 while non-life remained near 0.9% of GDP. This imbalance leaves many risks uninsured. The gap affects agriculture, health and disaster risk management. 
• Legacy public sector dominance: The sector still shows market concentration around large legacy firms. The Life Insurance Corporation (LIC) listed in 2022 but the government kept a dominant holding. The concentration constrains competition and product innovation. Reforms aim to level the playing field and spur new entrants.
• Distribution gaps and limited rural reach: Distribution remains uneven across states and rural areas. Insurers under-penetrate many districts. Poor distribution raises the cost of servicing low income groups. Public and private channels together fail to deliver consistent cover in remote regions.
• Capital needs and regulatory modernisation: Insurers need fresh capital to invest in data systems and health cover. The industry also needs global underwriting expertise to price complex risks. The government has raised FDI caps in steps from 26% to 49% then to 74% and now proposes to allow 100% FDI under the 2025 Bill.

Key Provisions of the Sabka Bima Sabki Raksha Bill, 2025

• Scope of the Amendment: The Bill seeks to amend the Insurance Act, 1938, the Life Insurance Corporation Act, 1956, and the IRDAI Act, 1999 to bring the current legal framework in line with new policy aims. The Bill clears the legal path for fresh rules and licensing norms.

• Foreign Direct Investment (FDI) Increase to 100%: The Bill proposes to raise the foreign ownership cap in Indian insurance firms from the current 74% to 100%. The change allows foreign investors to fully own Indian insurance companies subject to conditions set in law. The move is part of a wider push to attract global capital and expertise.

• Rationale for FDI Liberalisation: The government frames the change as a measure to improve capital availability, boost competition, and increase insurance penetration. The Net Owned Funds (NOF) requirement has been reduced to Rs 1,000 crore (roughly USD 141.8 million) from the previous Rs 5,000 crore.

• Regulatory Safeguards: The Bill strengthens legal tools for the Insurance Regulatory and Development Authority of India (IRDAI). The Bill gives the regulator clearer authority to set ownership safeguards, fit and proper criteria (like age for IRDAI members: Chairperson & Whole-Time Members to 65 years or 5-year term), and governance norms, raising the threshold for regulatory approval of equity transfers from 1% to 5%. The Bill also allows the regulator to impose measures for policyholder protection. 

• Changes Relating to LIC: The Bill includes focused provisions affecting the Life Insurance Corporation (LIC). The Bill allows modifications to the government stake rules in LIC. The Bill seeks to align LIC’s governance and capital rules with those applicable to other insurers.

• Capital and Solvency Provisions: The Bill keeps emphasis on solvency and capital adequacy. The Bill requires insurers to meet prescribed capital buffers. The Bill enables the regulator to adjust capital norms for new foreign owned entrants. These measures aim to protect policyholders from sponsor or market risks.

• Management Control: The Bill mandates clear rules on board composition, fit and proper persons, and risk management. The Bill empowers IRDAI to reject persons who do not meet governance criteria. The Bill requires disclosure of ultimate beneficial ownership for large shareholders. Policyholders’ Education & Protection Fund (PEPF) will be established to safeguard policyholders’ interests. 

• Market Entry and Licensing: The Bill simplifies the path for market entry by enabling new licences under amended rules. The Bill allows foreign entities to apply for insurer licences under the amended Acts. The Bill preserves licensing conditions that the regulator can update by rule.

Major Concerns 

• Absence of a Composite Insurance Licence: The Bill does not introduce a composite licence framework. A composite licence would allow one insurer to offer life, health, and general insurance under a single legal entity. India continues to follow a segmented structure created under the Insurance Act, 1938. This structure forces firms to operate in silos. The omission weakens the reform narrative of ease of doing business. It also limits scale benefits and risk diversification.
• High Minimum Capital Requirement for New Insurers: The Bill does not revise the minimum paid-up capital requirement for new insurance companies. At present, insurers must bring ₹100 crore for general insurance and ₹200 crore for life insurance as mandated by IRDAI regulations. These thresholds were set decades ago to ensure stability. Without this change, market entry remains limited to large corporations and foreign giants. This raises concerns of market concentration and reduced competition.
• Restricted Distribution and Agency Framework: The Bill does not liberalise the insurance distribution ecosystem. Insurance agents in India can sell products of only one life insurer and one non-life insurer. This restriction exists under current IRDAI norms. The Bill does not address this structural limitation. Multi-insurer agency models operate successfully in several advanced economies. The Bill also excludes permission for insurers to distribute non-insurance financial products. This separation limits cross-selling efficiencies.

• Exclusion of Captive Insurance and Corporate Risk Management: The Bill does not permit large firms to create captive insurance companies. Captive insurers allow corporations to insure their own risks internally. Many economies like the US and Japan permit such structures under regulation. The absence of this provision limits corporate innovation. It also increases dependence on external insurers. It also narrows the scope of the insurance sector, deepening beyond retail coverage.