The most significant recent news in insurance regulation is the passage of the "Sabka Bima Sabki Raksha" (Amendment of Insurance Laws) Bill, 2025 by India's Lok Sabha, which introduces major reforms like allowing 100% Foreign Direct Investment (FDI) and strengthening the regulator's powers. 

Key Phases in the Evolution of the Indian Insurance Sector

The history of India's insurance sector can be divided into four main eras: 

• Ancient Period: The concept of pooling resources to mitigate losses during calamities such as fire, floods, and famine is mentioned in ancient Indian texts like the Manusmriti and Arthashastra.
• British India Period: Modern insurance arrived in India in the 19th century. The first life insurance company, Oriental Life Insurance Company, was established in Calcutta in 1818, primarily serving Europeans. The first Indian life insurance company, the Bombay Mutual Life Assurance Society, was formed in 1870. General insurance began with the Triton Insurance Company in 1850. The Insurance Act of 1938 was the first comprehensive legislation to regulate the business.
• Nationalization Era: Following independence, the government nationalized the industry to protect policyholders' interests and channel funds into infrastructure development.
• Life Insurance: The life insurance business was nationalized on September 1, 1956, leading to the formation of the Life Insurance Corporation of India (LIC), which held a monopoly until the late 1990s.
• General Insurance: The general insurance business was nationalized in 1973, with 107 insurers merged into four public sector companies (National Insurance, New India Assurance, Oriental Insurance, and United India Assurance) under the General Insurance Corporation of India (GIC).
• Liberalization and Reforms Era: In 1993, the R.N. Malhotra Committee recommended opening the sector to private players. Following this report, the IRDAI was established as an autonomous regulatory body in 1999, and the market was opened to the private sector in 2000. The Foreign Direct Investment (FDI) limit has been progressively increased, reaching 74% in 2021. 

 
Current Scenario and Future Outlook

Today, the Indian insurance market is a dynamic mix of public and private sector companies, including 24 life insurers and 34 non-life insurers. The sector is growing rapidly at a rate of 15-20% and contributes around 7% to the country's GDP along with banking services. 
Key features and growth drivers include:

• Low Penetration: India's insurance penetration (premiums as a percentage of GDP) remains low compared to the global average, indicating significant growth potential.
• Government Initiatives: Flagship government schemes like Pradhan Mantri Fasal Bima Yojana (crop insurance) and Ayushman Bharat (health insurance) are increasing coverage and awareness.
• Insurtech Growth: The sector is a hub for insurtech innovation, with digital channels, AI, and data analytics transforming product delivery and customer experience.
• FDI Inflow: The increased FDI limit to 74% is expected to attract more capital, technology, and global expertise into the market. 

Overview of the Sabka Bima Sabki Raksha Bill, 2025

• Key Objectives:The bill's main goals include promoting insurance sector growth, protecting policyholders from misconduct, improving business ease, enhancing regulatory oversight by the IRDAI, and achieving "Insurance for All by 2047". 

• 100% Foreign Direct Investment (FDI): The FDI limit in insurance companies is raised to 100% to attract global capital and competition.
• Enhanced IRDAI Powers: The IRDAI gains stronger enforcement capabilities, including the ability to recover wrongful gains, to better protect policyholders.
• Operational Autonomy for LIC: LIC will have increased freedom in operations, such as opening new offices and restructuring overseas operations without prior government approval.
• Lowered Requirements for Foreign Reinsurers: The net-owned fund requirement for foreign reinsurance entities is reduced from ₹5,000 crore to ₹1,000 crore to encourage their entry.
• Investment Flexibility: Insurers are now allowed to invest in private companies. 

 
Details of the Expanded Powers

The expanded powers aim to enhance IRDAI's ability to supervise, investigate, and enforce regulations to address violations and safeguard policyholders' interests. 

• Authority to Order Searches: The Bill allows the IRDAI Chairperson to authorize senior officers (Deputy Director rank or higher) to conduct searches, seizures, and inspections.
• Conditions for Exercise: These powers can be invoked if the IRDAI suspects a regulated entity is concealing information, not providing required documents, or attempting to tamper with records.
• Scope of Action: Authorized officers can enter premises, examine documents, seize relevant records, and open locked areas if necessary.
• Scope of Entities: These powers cover insurance companies and various intermediaries, including agents, brokers, web aggregators, and TPAs.
• Alignment with Other Regulators: The Bill aligns IRDAI's enforcement powers with those of other Indian financial regulators like SEBI. 

Key Enforcement Powers

The Bill provides the Insurance Regulatory and Development Authority of India (IRDAI) with enhanced supervisory and investigative powers:

• Disgorgement of Wrongful Gains: IRDAI is empowered to order insurers and intermediaries to return, or "disgorge," any profits earned or losses avoided through illegal activities, such as mis-selling of policies or earning excessive commissions.
• Search and Seizure Authority: The regulator can authorize senior officers to conduct searches and seize relevant documents if there is suspicion that an entity is concealing information or attempting to tamper with records.
• Binding Directions: IRDAI can issue binding directions to insurers in the public interest, which may include measures to protect policyholders or ensure sound corporate governance. Compliance with these directions is mandatory.
• Wider Scope of Oversight: The enhanced powers apply not just to insurance companies but also to a wide range of intermediaries, including agents, brokers, web aggregators, Third-Party Administrators (TPAs), and corporate agents like banks and NBFCs. 

 
Enhanced Penalties

The Bill introduces a stricter penalty structure to act as a significant deterrent:

• Increased Maximum Penalties: The maximum penalty limit for non-compliance and regulatory violations has been significantly raised to ₹10 crore. Previously, the fine of ₹1 crore was only applicable to insurance companies, but now this higher limit extends to intermediaries as well.
• Penalties for Unregistered Operations: Specific fines of up to ₹10 lakh can be imposed on unregistered intermediaries, and insurers using such unregistered entities can face fines of up to ₹1 crore.
• Personal Accountability: The Bill introduces provisions for personal liability for directors, partners, and officers of entities involved in violations, fostering greater individual accountability.
• Transparency: Details of regulatory actions and penalties imposed are intended to be made public, adding reputational risk to financial penalties. 

Regulation of Intermediaries

The scope of regulation over intermediaries is broadened and strengthened under the Bill:

• Wider Definition: The Bill broadens the definition of "intermediaries" to include not just brokers and agents, but also web aggregators, Third-Party Administrators (TPAs), managing general agents, and insurance repositories.
• Enhanced Oversight and Penalties: The Bill extends IRDAI's supervisory, investigative, and enforcement powers—including search and seizure authority—to all these intermediaries, not just the insurers themselves.
• One-Time Registration: A new one-time registration system for intermediaries is introduced to streamline the process and reduce administrative disruption, while still allowing for robust oversight.
• Penalties for Unregistered Entities: Stiff penalties (up to ₹10 lakh for unregistered entities and ₹1 crore for insurers using them) can be imposed to ensure all market participants are properly registered and compliant.

Significance for Policyholders

The bill introduces several measures aimed at safeguarding policyholder interests and building trust in the insurance sector:

• Stronger Safeguards: It promises stronger safeguards against fraud, mis-selling, and unfair practices by insurers and intermediaries.
• Policyholders' Education and Protection Fund: The bill provides for the creation of a fund administered by the IRDAI, which will be utilized for policyholder education and protection.
• Transparent Commissions: The IRDAI is empowered to regulate and cap commissions or remuneration paid to insurance agents and intermediaries, which is intended to curb mis-selling driven by high incentives.
• Improved Grievance Redressal: Enhanced enforcement powers for the regulator are expected to improve the grievance redressal mechanisms and ensure faster and more efficient claims settlements.
• Data Protection and KYC: The legislation introduces a clear legal framework for data protection and KYC norms, ensuring policyholder data is handled securely and confidentially.
• Clear Identification: All insurance companies and intermediaries will be required to use the word "insurance" or "assurance" in their names, providing better clarity for customers and preventing confusion with non-insurance entities.
• Financial Security: By encouraging more capital into the sector (via 100% FDI) and enforcing stricter solvency norms, the bill aims to ensure the financial stability and resilience of insurers to pay claims. 

Significance for Governance

The bill reforms the governance structure by granting the Insurance Regulatory and Development Authority of India (IRDAI) a more proactive and robust role as a modern financial regulator:

• Enhanced Regulatory Powers: IRDAI is given expanded powers, including the authority to issue binding directions to insurers, order the disgorgement of "unlawful gains" made through violations, and supersede the board of an insurer if it acts against policyholder interests.
• Oversight of Intermediaries: Regulatory oversight is extended to a wide range of intermediaries, including managing general agents and web aggregators, with mandatory registration and higher penalties for non-compliance.
• Proactive Supervision: The bill marks a shift from a compliance-based model to a proactive, enforcement-driven framework, aligning Indian regulation with global best practices in financial sector oversight.
• Operational Autonomy for LIC: Amendments to the LIC Act grant greater operational autonomy to the public sector insurer, allowing the board to make operational decisions such as opening zonal offices without prior government approval.
• Increased Penalties: The penalty framework for non-compliance is strengthened, with maximum penalties raised significantly (up to ₹10 crore) to act as a stronger deterrent against misconduct.
• Transparency in Regulation-making: The bill mandates a formal standard operating procedure (SOP) for making new regulations, including public consultation, to ensure transparency and consistency. 

Challenges

• Regulatory Capacity and Overreach: The Bill grants expanded enforcement powers to the IRDAI, raising concerns about potential concentration of power and its arbitrary use. The regulator needs to build sufficient institutional capacity to handle the increased oversight effectively and transparently.
• Omission of Key Structural Reforms: A major challenge is the Bill's failure to introduce composite licensing, which would allow a single entity to operate across life, general, and health insurance segments. This limits product innovation and bundled offerings that could improve customer convenience.
• High Entry Barriers: The Bill does not lower the minimum paid-up capital requirements (₹100 crore for insurers, ₹200 crore for reinsurers), which continues to deter smaller, niche, or regional players from entering underserved markets, especially rural areas.
• Persistent Distribution Gaps: Despite the goal of inclusive growth, significant distribution gaps remain in rural and low-income areas. Reaching these segments requires a concerted effort beyond regulatory changes to infrastructure.
• Public Sector Concerns: The increased operational autonomy for LIC and the overall push for liberalisation have led to concerns from trade unions and some political voices about the potential dilution of the public sector's role and its stabilising influence in the market.
• Complex Policy Wording and Claim Delays: The core issues affecting policyholder experience, such as complex policy language and long claim settlement delays, are largely left to market practice and future regulations, rather than being fundamentally addressed in the legislation itself. 

Way Forward

• Transparent and Consistent Regulation: Effective implementation hinges on the IRDAI ensuring a transparent, consistent, and principle-based enforcement of its new powers. This must be complemented by clear and robust standard operating procedures for new regulations.
• Focus on Consumer Awareness: Regulatory reforms must be supported by increased consumer awareness and digital literacy campaigns. Educated policyholders are better equipped to protect their interests and demand better services.
• Accelerated Dispute Resolution: The grievance redressal mechanisms need to be faster and more efficient. Strengthening the capacity of the insurance ombudsman and internal company processes is crucial.
• Fostering Innovation: The IRDAI should explore introducing more flexible frameworks, such as a phased reduction in capital norms for micro-insurers or a sandbox approach for innovative products, to encourage new entrants and boost penetration in uncovered areas.
• Leveraging FDI for Expertise: The influx of 100% FDI should be leveraged not just for capital but also for global best practices in risk assessment, underwriting expertise, data analytics, and technology to modernize the sector.
• Future Structural Reforms: The government may need to consider deeper structural reforms in the future, such as introducing composite licensing or a framework for captive insurance, to further align the Indian market with global standards and unlock its full potential. 

 

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