The insurance sector forms a critical pillar of India’s economic and social framework. By enabling risk pooling and financial protection, insurance supports entrepreneurship, stabilises household savings, and strengthens the resilience of businesses against unforeseen contingencies. From a legal standpoint, insurance also performs an important public function by transferring and distributing risk in a structured and regulated manner.
Despite decades of statutory regulation, basic consumer questions such as what is life insurance, what is term insurance, and what is health insurance continue to dominate public discourse. These questions highlight not only gaps in financial literacy but also the need for a regulatory framework that balances market growth with transparency, accountability, and consumer confidence.
Insurance law in India has evolved gradually. Early forms of risk sharing existed long before codified legislation, but formal regulation began with the enactment of the Insurance Act, 1938. Post-independence nationalisation placed insurance firmly within the State’s welfare mandate, while later liberalisation introduced private participation under a regulated regime. The establishment of the Insurance Regulatory and Development Authority of India marked a structural transformation in oversight, enforcement, and policyholder protection.
In this context, the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025 represents a significant legislative intervention. The Act seeks to modernise India’s insurance framework by encouraging capital inflows, strengthening regulatory powers, improving consumer safeguards, and aligning domestic regulation with international best practices, all while pursuing the long-term objective of universal insurance coverage.
Policy Context and Legislative Objectives
India’s insurance market has expanded rapidly over the last decade. Increased digital adoption, simplified onboarding processes, and the growth of health and life insurance products have contributed to higher insurance penetration and density. At the same time, the expansion has revealed structural weaknesses, including mis-selling, delays in insurance claim settlement, governance failures, and uneven access across socio-economic segments.
The Sabka Bima Sabki Raksha Act addresses these systemic challenges through a calibrated policy approach. Its core objectives include:
- Attracting long-term domestic and foreign capital to strengthen insurer solvency and innovation
- Improving governance standards and regulatory supervision to address unfair trade practices
- Enhancing consumer protection mechanisms to reduce disputes relating to insurance claims
- Promoting technology-driven compliance, including digital insurance and insurtech solutions
The reforms affect a broad spectrum of stakeholders, including retail policyholders, health insurers, corporate insurance buyers, intermediaries, investors, and legal professionals advising on insurance claim law and regulatory compliance.
Liberalisation of Foreign Direct Investment in Insurance
One of the most far-reaching reforms introduced by the Act is the removal of the earlier 74 percent cap on foreign direct investment in insurance companies. The amended framework allows 100 percent foreign ownership in both life and general insurance businesses.
From a legal and economic perspective, this reform is intended to unlock fresh capital, global actuarial expertise, and advanced risk management capabilities. It also aligns India’s insurance sector with global investment norms, making it more competitive as a destination for long-term capital.
At the same time, the legislature has sought to preserve domestic oversight. The Act mandates that at least one senior management position, such as Chairperson, Managing Director or Chief Executive Officer, must be held by an Indian citizen.
Key legal implications include:
- Greater scrutiny of shareholder agreements, voting rights, and control mechanisms
- Enhanced compliance with foreign exchange laws and sector-specific approval requirements
- Reconfiguration of board composition and governance frameworks
These changes will have a direct impact on mergers, acquisitions, and cross-border investments in the insurance sector, particularly in the context of corporate insurance and group insurance structures.
Expansion of Regulatory and Enforcement Powers
The Act significantly strengthens the regulatory authority of the Insurance Regulatory and Development Authority of India. The enhanced powers reflect a shift towards more proactive and enforcement-driven regulation, similar to other financial sector regulators.
Key enhancements include:
- Authority to conduct search and seizure operations against insurers and intermediaries
- Power to recover wrongful gains arising from mis-selling or regulatory violations
- Ability to regulate commissions, remuneration, and incentive structures of agents
From a compliance standpoint, these changes require insurers and intermediaries to revisit internal controls, documentation practices, and supervisory mechanisms. The reforms also affect how insurers respond to consumer queries regarding insurance claim procedures, policy servicing, and grievance redressal.
Strengthening Policyholder Protection
A central theme of the Act is the protection of policyholder interests. To this end, the legislation establishes a Policyholders’ Education and Protection Fund. This fund is financed through penalties imposed on non-compliant insurers and through unclaimed policy amounts.
In addition, insurers are required to maintain electronic records of policies, claims, and servicing history. This measure enhances transparency and empowers consumers to better understand what is an insurance claim and how it can be pursued or escalated.
Expected outcomes include:
- Improved access to policy documents and claim records
- Reduction in disputes arising from documentation gaps or delayed health insurance claims
- Increased accountability in claims settlement processes
These measures directly affect consumer protection, insurance litigation, and the advisory role of an insurance lawyer representing both insurers and policyholders.
Liberalisation of the Reinsurance Framework
The Act introduces a major reform in the reinsurance segment by reducing the Net Owned Fund requirement for foreign reinsurance entities from Rs 5,000 crore to Rs 1,000 crore. This change is intended to attract global reinsurers and deepen India’s reinsurance market.
A stronger reinsurance ecosystem improves risk diversification, stabilises pricing, and supports complex corporate insurance programmes, particularly those involving catastrophic or large-scale risks.
However, regulators must continue to enforce prudential norms to ensure solvency, claims-paying capacity, and systemic stability within the insurance ecosystem.
Share Transfer, Cooperative Insurance and SEZ Reforms
The Act raises the threshold for prior regulatory approval of share transfers from 1 percent to 5 percent of paid-up capital. This change eases routine corporate transactions while preserving oversight over significant ownership changes.
Further, the removal of the Rs 100 crore minimum paid-up capital requirement for insurance cooperative societies is aimed at promoting community-based insurance models. Such models have the potential to expand coverage in rural and underserved regions.
The extension of regulatory flexibility to entities operating in Special Economic Zones and International Financial Services Centres ensures harmonised application of insurance law across specialised financial jurisdictions.
Key Legal Concerns and Governance Challenges
Despite its reformist intent, the Act raises important legal and policy concerns that merit careful evaluation.
These include:
- The risk of excessive profit repatriation by foreign-owned insurers and its impact on domestic reinvestment
- Potential market concentration favouring urban and high-income segments
- The recalibration of the State’s role in social risk protection and its implications for vulnerable populations
Insurance is inherently trust-based. Any erosion of public confidence due to aggressive market conduct, weak claims management, or regulatory failure could increase insurance litigation and undermine long-term participation.
Practical Compliance Imperatives for Insurers
For insurers and intermediaries, the Act necessitates a proactive compliance approach. Key steps include:
- Strengthening governance frameworks and board-level oversight
- Enhancing digital record-keeping and claims workflows to reduce delays
- Revising agent contracts and commission structures in line with regulatory powers
- Improving audit trails and internal investigations to respond to enforcement actions
These measures align with best practices in regulatory audits, health insurance compliance, and corporate insurance governance.
Conclusion
The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025 represents a landmark reform in India’s insurance law framework. By liberalising ownership norms, empowering the regulator, and strengthening consumer safeguards, the Act seeks to balance market expansion with accountability and trust.
By addressing fundamental questions such as what is life insurance, the types of insurance available, and how insurance claim law operates in practice, the legislation aims to deepen market participation while safeguarding policyholder interests.
Its success will ultimately depend on effective enforcement, transparent governance, and sustained regulatory vigilance. If implemented with institutional discipline and strong compliance mechanisms, the reforms have the potential to build a more inclusive, resilient, and trustworthy insurance ecosystem aligned with India’s long-term vision of universal insurance coverage.
