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WANAN YOSSINGKUM
As an attempt to simplify India’s insurance laws and improve ease of doing business, the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act passed by Parliament last week ticks all the right boxes. It moots changes on two fronts. It integrates the Insurance Act 1938, LIC Act 1956 and Insurance Regulatory and Development Authority Act 1999 into a single piece of legislation, establishing a level playing field between private and public sector insurers, Indian and foreign-owned insurers; it does away with special treatment to the Life Insurance Corporation. Recognising that policyholders get the short shrift, it expands the powers of Insurance Regulatory and Development Authority (IRDAI).
IRDAI can now order searches, seizures and inspections of insurers, investigate intermediaries and order disgorgement of wrongful gains made by insurers or intermediaries, like SEBI (Securities and Exchange Board of India) does. It can levy penalties of up to ₹10 crore on insurers and fix regulatory caps on commissions to agents. It can also supersede the Board of an insurer and appoint an Administrator to protect policyholder interests. While all this endows IRDAI with considerable regulatory muscle, it needs to be seen if the regulator flexes them.
The most-discussed aspect of the law though, is its relaxation of Foreign Direct Investment (FDI) limits in insurance. Based on the premise that capital constraints are holding back industry growth and insurance penetration, the Act allows foreign players to own up to 100 per cent equity in Indian insurance ventures, from 74 per cent earlier. The earlier hike from 49 per cent to 74 per cent in March 2021 drew lukewarm response, with just four of the 74 licensed insurers seeing foreign partners hike their stakes. Now, the stipulation that foreign-owned insurers have majority Indian Board members and Indian top executives, which was seen as a deal breaker, has been done away with. Only the Chairperson/MD/CEO needs to be an Indian resident now, enabling foreign promoters to exercise greater management control.
However, it remains to be seen whether this move attracts more FDI. Despite events like Covid, life insurance in India remains a push product that is hard-sold rather than voluntarily bought. Globally, life covers are bought to protect dependents. In India however, the bulk of life insurance sales comprise traditional fixed-return plans with a fig-leaf of protection. In general insurance, insurers struggle to sustain profitable operations, thanks to regulated tariffs (in the motor business) and large underwriting losses in health and general insurance due to mispriced risk. Strangely, patchy industry profitability co-exists with sub-par policyholder experience on premiums and claims. Unless consumer perceptions and industry models change, it is doubtful if global players will be interested. To improve the profitability of general insurers, tariffs need to be left to market forces and robust data-based underwriting practices need to be instituted.
Published on December 21, 2025
