India Permits 100% FDI in Insurance Sector

In a landmark move aimed at attracting global capital and boosting insurance penetration across India, Indian Parliament passed the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025, raising the foreign direct investment (FDI) cap in the insurance sector from the existing 74% to 100%.

What the Bill Does

• Raises FDI limit to 100%: Foreign investors can now own up to 100% of Indian insurance companies, removing the previous cap of 74%.
• Amends key insurance laws: The legislation updates the Insurance Act, 1938, the Life Insurance Corporation Act, 1956, and the Insurance Regulatory and Development Authority Act, 1999.
• Enables mergers: Non‑insurance companies will be allowed to merge with insurance firms, potentially simplifying corporate structures and encouraging innovation.
• Policyholder protection: The bill establishes a Policyholders’ Education and Protection Fund to safeguard the interests of policy buyers.

Market Rationale

Lifting the FDI limit will help bring in more capital, technology, and competition into the insurance market with more foreign participation, which could eventually help lower premiums and broaden coverage while driving employment growth in the sector. As per Government, employment in the sector has almost tripled since the FDI limit was increased from 26% to the current 74%.

The bill is part of a broader push to expand financial services and increase insurance penetration in India, which has lagged behind many other major economies.

According to the latest data, India’s insurance penetration—the ratio of total premiums to GDP—dropped to 3.7% in 2023-24 from 4% in 2022-23. Specifically, life insurance penetration declined to 2.8% from 3%, while non-life insurance penetration remained stable at 1%.