Greater FDI in insurance to promote competition, increase penetration: FM

New Delhi, Dec 16 (PTI) Finance Minister Nirmala Sitharaman on Tuesday said that raising the FDI limit to 100 per cent in the insurance sector will help attract more capital, improve competition and increase insurance penetration by making policies more affordable.

Replying to the debate on the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025, in the Lok Sabha, Finance Minister Nirmala Sitharaman said the proposed removal of the upper cap on FDI in the insurance sector would ensure capital flow in the sector.

This will ensure that the country benefits from better technology and world-class risk assessment models, as well as the best insurance products available anywhere in the world, she said, adding that FDI will attract more players and make insurance policies more affordable.

"Monopoly doesn't give us that advantage, and therefore, the more the competition, the better the rates," she added.

"Another priority which our government has given is to strengthen the public sector insurance companies...since 2014, we are doing a lot of things to improve the ecosystem...Capital to the tune of Rs 17,450 crore has been infused into three public sector general insurance companies to strengthen their capital base," she said.

As a result of these and other measures taken, she said, LIC, GIC-Re and Agriculture Insurance Company of India Ltd (AICIL) reported their highest-ever profits last year, while other companies have also started turning profitable.

Lok Sabha passed the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025, with a voice vote.

The Bill would lead to amendments in the Insurance Act, 1938, the Life Insurance Corporation Act, 1956, and the Insurance Regulatory and Development Authority Act, 1999.

The amendment seeks to raise the foreign direct investment (FDI) limit in the insurance sector from 74 per cent to 100 per cent.

It also paves the way for the merger of a non-insurance company with an insurance firm.

The finance minister said that the government led by Prime Minister Narendra Modi raised the FDI limit for insurance companies from 26 per cent to 49 per cent in 2015 and from 49 per cent to 74 per cent in 2021 to attract global capital and technical know-how.

Similarly, the FDI limit for insurance intermediaries was raised to 100 per cent in 2019 to enable them to provide better advisory services to citizens.

To make insurance more affordable, Sitharaman said the 56th GST Council Meeting held in September unanimously agreed to remove GST on individual life and health insurance premiums.

There is now a nil GST rate, which was earlier 18 per cent on all individual life insurance policies and individual health insurance policies and this is a significant tax relief that directly reduces the cost of premiums for policyholders, encouraging more people to insure themselves and their families, she said.

The GST Council secretariat is monitoring complaints regarding GST cut benefit not being passed on to policyholders, she added.

Talking about the features of the bill, Sitharaman said, it provides for the establishment of the Policyholders' Education and Protection Fund to protect policyholders' interests from the fines collected by the regulator, Insurance Regulatory and Development Authority of India (IRDAI).

It also proposes to empower the regulator to disgorge wrongful gains made by insurers and distribute them to affected insurance policyholders.

The Bill also seeks to reduce the net own fund requirement for foreign reinsurance branches from Rs 5,000 crore to Rs 1,000 crore, which would invite more reinsurance into this country, create greater risk management and risk capacity, and create a level playing field.

Besides, there is a provision for the merger of a non-insurance company with the insurance company with a view to promoting a simplified corporate structure.

In addition, the bill seeks to provide greater autonomy to Life Insurance Corporation of India (LIC).

"We are providing autonomy to LIC to open zonal offices and aligning compliance for its foreign offices with the laws and regulations which prevail in the respective jurisdictions," she said.

The Bill also proposed rationalising the penalties imposed by the regulator and increasing the penalty limit to Rs 10 crore.

"Earlier, the fine of one crore, which we are now proposing to increase to Rs 10 crore, was only applicable to the insurance companies and not for the intermediaries. Now we are bringing both on board, and both will be at Rs 10 crore penalty, so that they will be some deterrent from compliance oversights as a result of which many of the policyholders suffer," she said.

With regard to the term of office of the Chairperson and other whole-time members, the Bill provides for a five-year term or until they attain the age of 65 years, whichever is earlier, it said.

At present, the upper age limit for whole-time members is 62 years, while the upper age limit for the Chairman is 65 years.

Sitharaman, in this year's Budget speech, proposed raising the foreign investment limit in the insurance sector to 100 per cent from the existing 74 per cent as part of new-generation financial sector reforms.

So far, the insurance sector has attracted Rs 82,000 crore through foreign direct investment (FDI). PTI DP MR