“It shall come into force on such date as the Central Government may appoint, by notification in the Government Gazette,” the notification said after President Droupadi Murmu approved the bill, following approval by Parliament during the just-concluded winter session.
The new law amends three existing laws: Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and the Insurance Regulatory and Development Authority Act, 1999.
Earlier, in response to the debate on the bill in Parliament, Finance Minister Nirmala Sitharaman said the aim of bringing in FDI is not to demolish the public sector but to ensure more choice and efficiency for the common people.
She said the government has in fact taken several steps to strengthen PSU insurance companies, even injecting ₹17,450 crore into three non-life companies. “We are now looking for greater penetration, better regulatory oversight, easier compliance and more foreign direct investment,” Sitharaman had said.
Significantly, while the law increases foreign direct investment in the insurance sector to 100 percent, the top management of the insurance company – chairman, managing director or CEO – must be an Indian citizen. It also paves the way for the merger of a non-insurance company with an insurance company.
The minister said that the FDI limit in the insurance sector has been gradually increased – from 26 percent to 49 percent in 2015, 74 percent in 2021 and now proposed to 100 percent.
“These have given a bigger boost to the insurance sector. The number of insurers has increased from 53 in 2014 to 74 now,” Sitharaman said.
She added that insurance penetration has improved from 3.3 percent in 2014-15 to 3.8 percent now and insurance density, or the average insurance premium paid per person in a year, has increased from $55 in 2014 to $97 now.
According to a government statement, ‘Ease of Doing business’ for intermediaries is being promoted through the introduction of one-off licenses and the option to suspend licenses instead of immediate cancellation.
For insurers, the limit for obtaining prior regulatory approval for transfer of share capital has been increased from 1 per cent to 5 per cent, and the net equity requirement of foreign reinsurance affiliates has been reduced from ₹5,000 crore to ₹1,000 crore. LIC has been given the autonomy to open zonal offices in the country and bring its foreign offices into compliance with the laws and regulations of their respective jurisdiction.
To protect the interests of policyholders, a special fund, namely the Policyholder Education and Protection Fund, will be established to increase awareness about insurance. Policyholder data should now be collected and protected in accordance with the DPDP Act 2023.
Supervision of regulations is strengthened by the introduction of a standard procedure for drawing up regulations and making the consultation process mandatory. IRDAI will have the power to enforce unlawful profits from insurers and intermediaries. Sanctions are rationalized and factors for imposing sanctions are introduced.
The reforms are aimed at expanding insurance coverage to people, households and enterprises, deepening insurance coverage, facilitating business and improving regulatory supervision and governance, the statement said.
Published on December 22, 2025
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