Decoding India's New Insurance Regime: Key Highlights Of The Sabka Bima Sabki Raksha Act, 2025

The Indian Parliament has significantly reformed the country's insurance landscape with the enactment of the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025 ("Act"), which received the assent of the President of India on December 20, 2025, but is its commencement date is yet to be notified by the Central Government.

The Act introduces extensive amendments to the Insurance Act, 1938 ("Insurance Act"), the Life Insurance Corporation Act, 1956, and the Insurance Regulatory and Development Authority Act, 1999 ("IRDAI Act") and introduces reforms to modernise the insurance regulatory framework, liberalise ownership norms, and strengthen the supervisory role of the Insurance Regulatory and Development Authority of India ("IRDAI").

The key amendments are set out below:

1. Liberalisation of the Foreign Investment Regime

• The most significant reform is the increase raising the Foreign Direct Investment ("FDI") limit in Indian insurance companies from 74% to 100% subject to conditions to be prescribed by the Central Government. While a decisive policy shift towards greater liberalisation was initiated in 2021 when the FDI limit was raised from 49% to 74%, this latest enhancement to 100% represents a further, substantial opening of the sector.
• To give operational effect to this enhanced cap, consequential amendments will be required to be made to the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 ("NDI Rules"), which must not only align the permissible foreign investment limits with the new 100% statutory ceiling but also revise the associated conditions on governance and control to make them consistent with the foreign ownership model.
• In furtherance of this liberalised framework, the Ministry of Finance, on December 30, 2025, notified the Indian Insurance Companies (Foreign Investment) Amendment Rules, 2025 (the "Amended Rules"). The Amended Rules now replace key provisions within the Indian Insurance Companies (Foreign Investment) Rules, 2015 (the "Foreign Investment Rules 2015") replacing the erstwhile 74% foreign direct investment cap prescribed with a formulation that aligns the permissible foreign investment limit with that "stipulated by the Insurance Act, 1938". Following the amendment that permits foreign direct investment up to 100%, the Foreign Investment Rules, 2015 operate to allow the enhanced cap without the need for any further amendment.
• Further, the IRDAI (Registration, Capital Structure, Transfer of Shares and Amalgamation of Insurers) Regulations, 2024 (the "Registration Regulations") were structured around a capped foreign investment regime and, accordingly, incorporated multiple provisions that limit, condition, and monitor foreign shareholding. With the introduction of permitting up to 100% foreign investment, the Registration Regulations will require amendments, including revising affidavit requirements among others.

2. Expanded Scope of Insurance Business

• The Act introduces significant amendments to the definition of "insurance business" and "class of Insurance Business".
• The Act introduces a new Section 2(5A) which defines "class of insurance business" to include life insurance business, general insurance business, health insurance business, re-insurance business, and crucially, "such other class of insurance business as may be notified by the Central Government in consultation with the Authority from time to time." This delegation of power to the Central Government, in consultation with IRDAI, enables flexibility in classification of insurance activities in response to market developments. As new risks emerge and new technologies enable innovative insurance solutions, the Central Government can undertake definitional expansion and swiftly bring additional classes of insurance business under the regulatory framework without the lengthy process of parliamentary legislation.
• While at present, technology driven models have not been formally recognised, the Act's enabling provision creates a flexible framework that could potentially allow recognition of technology-driven models as separate classes in the future. IRDAI has indicated its willingness to support this technology driven approach through the issuance of the IRDAI (Regulatory Sandbox) Regulations, 2025, which provide a controlled framework for insurers to pilot innovative products and business models.
• Similarly, Section 2(6D) redefines "insurance business" to encompass the business of effecting contracts of insurance (i.e., the contract whereby the insurer, on payment of premium, undertakes to assume risk and pay to the insured person an agreed compensation for loss, damage or liability arising from a contingent event), and will include contracts of life insurance, general insurance, health insurance, and re-insurance. Importantly, it also includes "any other form of contract as may be notified by the Central Government in consultation with the Authority from time to time." This forward-looking provision also creates scope for recognition of technology-driven and other innovative insurance contracts in the future.

3. Facilitating Corporate Restructuring and Ease of Doing Business

• The Act increases the threshold for any transfer of shares that do not require IRDAI's approval from 1% to 5% of the insurer's paid-up capital, where such transfer is by an individual, firm, group, constituents of group or body corporate under the same management (whether acting jointly or severally). To give effect to this, the Registration Regulations will need to be amended to remove self-certification requirements for transfer of shares of a listed insurer up to 5%. The requirement to obtain prior approval from IRDAI for any transaction likely to result in the transferee's shareholding exceeding 5% of the insurer's paid up capital continues to remain in force.
• Regulatory practice has historically disfavoured mergers between insurers and non-insurance entities, with the IRDAI rejecting proposals such as the restructuring involving Max Life Insurance, its non-insurance holding company, and HDFC Life Insurance. This approach was echoed by an IRDAI-constituted panel led by former State Bank of India Chairman Dinesh Kalra in February 2025, which reportedly highlighted potential risks to policyholders. The position shifted in March 2025, when the NCLAT, in IRDAI v. Shriram General Insurance Company Limited , held that in the absence of an express statutory prohibition, such mergers may be effected under the Companies Act, 2013 without prior IRDAI approval.
• In line with the above, the Act now provides for the amalgamation and transfer of business between an insurance company and a non-insurance company, subject to the prior approval of IRDAI. The amendment appears to address structural rigidities in group reorganisations and may facilitate ease of doing business for insurance companies, intermediaries and other stakeholders while ensuring regulatory oversight.

4. Management and Governance Changes

• The Act expands the restrictions on common directorships. An insurer is now prohibited from appointing any individual as a director if that person serves as a director in: (i) another insurer in the same line of business, (ii) a banking company, or (iii) an investment company. Previously, this restriction applied only to life insurers with common managing directors in similar entities. The broadened scope is likely to have significant implications for banks, investors and investment companies, many of which are promoters or significant shareholders of Indian insurers, as they may need to reconstitute their nominees on insurer boards.
• Further, the Amended Rules have substantially relaxed the erstwhile "Indian management and control" requirements, now mandating that only one amongst the Chief Executive Officer, Managing Director, or Chairperson be a Resident Indian Citizen. This represents a considerable departure from the earlier requirement that a majority of directors and Key Management Persons be resident Indian citizens.
• Additionally, specific conditions imposed on the appointment of independent directors for companies with foreign investment over 49%, has been omitted from the Foreign Investment Rules 2015 entirely.

5. Removal of Restriction on Investment in Private Companies

• The Act repeals Section 27A of the Insurance Act, eliminating the limitations on insurers investing in shares and debentures of private companies. This change could enable insurers to diversify their investment portfolios and promote investments in related ventures.

6. One-Time Registration for Insurance Intermediaries

• Under the erstwhile framework, insurance intermediaries were required to renew their registration with IRDAI every 3 years, permitting the regulator to periodically assess their conduct and review the shareholding patterns of certain intermediaries, such as insurance brokers. However, the Act eliminates this mandatory 3-year renewal cycle, enabling intermediaries to continue their operations as long as they pay the prescribed periodic fees, unless their registration is suspended or cancelled by IRDAI.

7. Key Regulatory Reforms Impacting Foreign Reinsurance Branches in India

• The Act introduces several significant reforms to the regulatory framework governing Foreign Reinsurance Branches ("FRBs") in India. Most notably, it substantially reduces the minimum Net Owned Fund requirement for an FRB from INR 50,000 million/ USD 551.27 million to INR 10,000 million/USD 110.91 million, thereby materially lowering the entry barrier for foreign reinsurers seeking to establish operations in India.
• In addition, the Act clarifies the eligibility and operational scope of FRBs by amending to expressly permit a foreign company to establish a branch in India exclusively for the purpose of carrying on reinsurance business, while expressly prohibiting such branches from undertaking any other class of insurance business in India.
• Further, the Act mandates that the assets of insurers domiciled outside India, including FRBs, be held in India and vested in a trust with trustees' resident in India and approved by the IRDAI, thereby ensuring the availability of funds to meet liabilities arising from Indian operations.

8. Strengthening of Regulatory Powers and Oversight of IRDAI

• The Act substantially strengthens IRDAI's enforcement and supervisory powers and focuses on the protection of policyholders. IRDAI has been granted the power of disgorgement, enabling it to order the recovery of wrongful gains made by insurers or intermediaries and to direct that such amounts be used to compensate affected policyholders. This is a critical enhancement to its punitive and remedial capabilities.
• The Act also empowers IRDAI to specify, through regulations, limits on commissions, remuneration, or other rewards payable to insurance agents and insurance intermediaries, giving the regulator direct control over distribution costs and the conduct of intermediaries.
• The Act further increases the maximum penalty for a contravention of the Insurance Act, and regulations, from INR 10 million / USD 0.11 million to INR 100 million/ USD 1.11 million. The penalty imposed for each day of contravention continues to remain INR 100,000 / USD 1,114. Factors to be considered by IRDAI before imposing penalties have also been introduced. These include, amongst others, loss caused to the policyholders, nature, gravity and duration of the default, and actions taken by the person to mitigate the effects and consequences of default.
• The Act also authorises IRDAI to supersede the Board of Directors of an insurer and appoint an Administrator for a period not exceeding 1 year if it determines that the insurer is acting in a manner prejudicial to policyholders' interests. IRDAI may extend the period of 1 year for reasons to be recorded in writing. The introduction of a time-bound tenure (albeit extendable) appears to structure what was earlier an open-ended tenure of supersession.

9. Greater Operational Autonomy for LIC

• The Act introduces key changes to the Life Insurance Corporation Act, 1956, to provide the Life Insurance Corporation of India ("LIC") with greater operational autonomy, enabling it to function with enhanced agility. As per the Act, LIC's board will now have the authority to establish new zonal offices without requiring prior approval from the Central Government, facilitating faster administrative expansion.
• The Act also permits LIC's overseas branches and offices to maintain their funds in accordance with the laws of the host country. This enables LIC to restructure its international operations in line with local regulations, enhancing compliance and supporting the LIC's efforts to expand its global presence. While this reflects the practical necessity of complying with the laws of the host country, it would need to be implemented in a way that ensures continued oversight under Indian law at a consolidated level.

10. Market Development and Policyholder Protection

• The Act establishes a Policyholders' Education and Protection Fund to promote insurance awareness and safeguard policyholder interests. The Fund will be financed through grants, donations, and penalties collected by IRDAI, with its corpus comprising: (i) contributions from the Central Government, State Governments, IRDAI, companies, or other institutions; (ii) sums realized from penalties imposed by IRDAI under the Insurance Act, or the IRDAI Act, including associated rules and regulations; and (iii) any other amounts specified by IRDAI through regulations.
• The Act introduces a new data governance framework by inserting Sections 14A, 14B, and 14C into the Insurance Act, imposing statutory duties on insurers and other regulated entities regarding policyholder data. IRDAI is empowered to direct the processing of Know Your Customer data, which must be used solely for regulatory and operational purposes. Insurers and insurance intermediaries must maintain strict confidentiality of policyholder information.

11. Expanded Social and Rural Sector Obligations

• The Act expands insurers' mandatory obligations to serve the rural and social sectors by amending Sections 32B and 32C of the Insurance Act. It replaces references to "life insurance business and general insurance business" with the broader term "insurance business", making the requirement applicable to all classes of insurance.
• Likewise, the term "insurance policies" now replaces "life or general insurance policies", extending the obligation to provide coverage for rural populations, the unorganised sector, and economically disadvantaged groups across all types of insurance.

12. Scope of Business: From Composite Licensing Ambitions to the Act's Limited Framework

• The draft bill circulated in 2024 contemplated the introduction of a composite licensing regime that would have permitted a single insurer to carry on multiple classes of insurance business. The Act, however, does not adopt this approach and instead retains the existing class-based registration framework. At the same time, it introduces a revised definition of "class of insurance business," empowering the Central Government to notify additional classes in the future.

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