Will reforms unlock insurance potential? |
The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025, passed by both houses of Parliament in December, represents a selective implementation of the 2024 draft proposals. The amendment to the law was largely designed with an ambitious government objective of insurance for all by 2047. Considering the exclusion of a vast proportion, the amendment was aimed at providing the necessary supply of insurance cover and products by augmenting the capacity of providers through the FDI route with limit expansion from 74% to 100%. The reforms associated with demand creation and affordability of insurance are yet to be worked out.
While the amended law delivers critical reforms on foreign investment liberalisation, regulatory empowerment, and to a certain extent operational efficiency, it has deferred or excluded several transformative provisions demanded by the stakeholders, and in many cases determined by the policymakers’ understanding of the industry. One such reform was the composite insurance licensing envisaged by policymakers. Then there was the licensing of captive companies. The major reform associated with opening the agency distribution channel with an open architecture approach and making it attractive for foreign strategic investors is also dropped from the original draft. This article discusses the reforms and their likely impact on industry.
The central reform increases the FDI cap to 100%, formalised in the new Section 3AA of the Insurance Act. The provision addresses longstanding capital constraints and operational flexibility for foreign partners in joint ventures (JVs). At a hypothetical estimation, the potential flow of FDI in the life, general, and health insurance sectors could be around Rs 2.5 lakh crore ($30 billion),........