New Insurance Bill, 2025: Key Provisions & Issues

The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025, aims to modernise India’s insurance framework in line with Insurance for All by 2047.
It has amended the Insurance Act 1938, the LIC Act 1956, and the IRDAI Act 1999 to expand the insurance coverage.

Overview of Insurance Sector in India

Insurance Market (Global): India’s overall insurance market is ranked the 10^th largest in the world in terms of total premium volume.
Life Insurance Sector: India also ranks 10^th globally in the life insurance business.
LIC Global Ranking: The Life Insurance Corporation of India (LIC) is ranked among the 3^rd strongest insurance brands globally according to Brand Finance’s 2025 report.
Market Size: The Indian insurance market was valued at approximately USD 303.3 billion (₹25 lakh crore) in 2024 and is expected to grow substantially in the coming decade.
Penetration: Insurance penetration in India stood at around 3.7% of GDP (latest for FY24), with life insurance accounting for ~2.8% and non-life for ~0.9%.

Need for the New Insurance Bill

Low Insurance Penetration: Insurance penetration in India is only ~4% of GDP, compared to the global average of ~7%, leaving large populations uninsured.
Capital & Investment Deficit: Long-term insurance requires deep capital, but restricted inflows limited expansion. E.g. Raising FDI to 100% can attract global insurers into a market with a 1.4 billion population.
Reinsurance Concentration Risk: India’s reinsurance market is dominated by GIC Re (General Insurance Corporation of India Reinsurance), limiting risk diversification.
Weak Consumer Protection: Earlier regulatory tools had limited deterrence against unfair practices.

Key Provisions of the Bill

FDI Liberalisation: Raises insurance FDI cap from 74% to 100%, enabling global capital inflows.
Reinsurance Entry: Cuts Net Owned Funds for foreign reinsurers from ₹5,000 crore to ₹1,000 crore.
Equity Flexibility: Raises IRDAI approval threshold for share transfer from 1% to 5%.
Autonomy: Allows LIC to open zonal offices and restructure overseas operations without prior approvals.
IRDAI Empowerment: Grants powers for disgorgement, penalties and one-time registration.

Disgorgement: A regulatory enforcement tool that requires entities to return unlawfully gained profits, preventing unjust enrichment and deterring violations.

Key Issues Within the Bill

Composite Licensing: No provision allowing insurers to operate across life and non-life segments.
Entry Barriers: ₹100 crore minimum paid-up capital for insurance companies (life and general insurers) and ₹200 crore for reinsurance companies, remaining unchanged under the Bill
Limited Inclusion: Missed opportunity for niche, regional, health-only, or micro-insurers.
Product Silos: No permission for bundled insurance or cross-financial product distribution.
Risk Innovation: Absence of a framework for captive insurance for large corporations.

Captive Insurance: A risk-management arrangement where a company creates its own subsidiary insurer to cover internal risks and reduce dependence on external insurance markets.

Way Forward

Composite Licensing: Allow single insurers to operate across life, health and general insurance; E.g. global markets like the UK and Australia permit composite insurers.
Capital Rationalisation: Reduce minimum paid-up capital to enable niche and regional players; E.g. micro-insurance models in ASEAN markets expanded coverage among low-income households.
Inclusive Insurance: Promote health-only, micro and rural insurers to reach underserved groups; E.g. PMFBY and Ayushman Bharat show targeted schemes improve last-mile coverage.
Regulatory Safeguards: Strengthen IRDAI’s supervision alongside liberalisation to protect policyholders; E.g. SEBI-style disgorgement powers ensure market discipline.

“The New Insurance Bill, 2025, can revolutionise India’s insurance landscape, driving inclusive coverage and robust financial security.” As PM Modi says, “Financial inclusion is the foundation of India’s prosperity,” and with smart reforms and strong safeguards, the sector can achieve sustainable, trustworthy growth.

Reference: The Indian Express

PMF IAS Pathfinder for Mains – Question 461

Q. Analyse the major structural constraints limiting insurance expansion in India. To what extent does the Sabka Bima Sabki Raksha Bill, 2025, address these constraints? (250 Words) (15 Marks)

Approach

Introduction: Write a brief introduction about the insurance sector in India & mention the latest data.
Body: Analyse major structural constraints limiting insurance expansion in India, write how Sabka Bima Sabki Raksha Bill, 2025 addresses these constraints and mention remaining gaps in the insurance sector.
Conclusion: Focus on a unified and inclusive approach with a clear way forward.