Daijiworld Media Network - New Delhi

New Delhi, Jan 7: India’s insurance industry is set to undergo a significant transformation following Parliament’s approval of the Insurance Laws (Amendment) Bill, 2025, a landmark reform that opens the sector to 100 per cent foreign direct investment (FDI) and relaxes entry norms for global reinsurers.

Industry analysts say the changes will improve capital availability, strengthen solvency positions, enhance competition and create a more resilient insurance ecosystem, particularly benefiting small and mid-sized insurers. According to an Insurance Asia report, the reforms are expected to make the sector more attractive to long-term global investors.

The bill raises the FDI cap in insurance companies from 74 per cent to 100 per cent. To facilitate this shift, amendments have been introduced to several key legislations, including the Insurance Act, 1938, the Life Insurance Corporation Act, 1956, and the Insurance Regulatory and Development Authority of India (IRDAI) Act, 1999.

With solvency requirements becoming increasingly stringent, the higher FDI limit is expected to ease capital pressures on insurers. Rating agency CareEdge Ratings noted that the reform could also accelerate consolidation in the sector, enabling stronger balance sheets and operational efficiencies.

Another major change reduces the net-owned fund requirement for foreign reinsurers to ?1,000 crore from the earlier Rs 5,000 crore. This move substantially lowers entry barriers for international and niche reinsurance players, making India a more accessible market.

CareEdge Ratings said the relaxed norms are likely to deepen competition and expand domestic reinsurance capacity, while ensuring that capital remains anchored within India to support local insurers.

Separately, Emkay Global Financial Services projected that India’s insurance sector will post a stable operating performance in the third quarter of FY26. While premium growth is expected to gain momentum, profitability may remain under pressure due to GST input tax credit losses, higher commission payouts and ongoing regulatory adjustments.

The industry has broadly welcomed the legislation. Last month, an industry body described the bill as a reform that “brings clarity, confidence and long-term capital into a growing sector that plays a vital role in strengthening financial security.”

The bill also grants greater regulatory flexibility to insurers operating in Special Economic Zones (SEZs) and International Financial Services Centres (IFSCs). It empowers the central government to design customised insurance regulations for these zones, a step expected to encourage cross-border insurance activity and reinforce IFSCs as regional insurance hubs.

Taken together, the reforms mark one of the most far-reaching overhauls of India’s insurance framework in recent years, positioning the sector for sustained growth and deeper global integration.