The Union Cabinet, on Friday, finally bit the bullet and cleared a proposal to raise the FDI cap for insurance companies to 100 percent from 74 percent. On Monday, the government may table the Insurance Laws (Amendment) Bill, 2025, in Parliament. It wants to attract long-term global investors and bolster the insurance sector’s capital base. This decision had remained in limbo for a long time. In 2022, the government floated a draft Insurance Amendment Bill that raised the FDI cap to 100 percent.
However, with the general election due in 2024, it decided not to move ahead with the politically sensitive legislation. After the NDA returned to power that year, Finance Minister Nirmala Sitharaman announced in last year’s Budget that the FDI limit would be raised to 100 percent for insurers that invest their entire premium income in India.
The latest decision signals the government’s intent to move to the next phase of reforms, driven by the need to increase insurance penetration. Rightly so, as life insurance remains under-represented in India, with penetration at about 3 percent, compared with a global average of 5.4 percent. General insurance fares even worse, at only 1 percent, far below the global level of 4.7 percent. Opening the door to higher foreign ownership is likely to bring in much-needed capital, enabling insurers to grow, reach more customers, introduce new offerings, and raise service standards. Increased investment and competition could also push insurers to cover more people, create jobs, and make the sector work more efficiently.
In 1999, when insurance was opened up, the FDI cap was 26 percent and was later raised to 49 percent, giving Indian companies time to build capabilities and scale. Global insurers largely entered through joint ventures with domestic firms. Over the years, groups such as Bajaj, SBI, ICICI, Max, and HDFC have established strong market presence. With a 100 percent FDI limit, foreign insurers are expected to take on a bigger role, including by offering more innovative solutions suited to Indian conditions.
The proposed Bill is also expected to introduce composite licensing, allowing insurers to offer both life and non-life products under a single licence. The challenge now lies in ensuring that regulatory oversight keeps pace with increased foreign participation, so that wider coverage and consumer interests remain central to the reform's agenda.