Alerts & Updates 19th Dec 2025
With the new Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025, India’s insurance sector is on the verge of its most sweeping reform in about a decade. Key reforms proposed are discussed below:
The Bill introduces a foreign investment framework under which aggregate foreign shareholding (including portfolio investment) in an Indian insurance company may go up to 100% of its paid-up equity capital, subject to conditions and manner to be prescribed by the Central Government.
This signals that India wants deeper global participation and long-term capital in insurance. For investors, it creates clearer control pathways. For the market, it promises more capital, more competition and potentially sharper pricing and more innovative products over time.
The Bill codifies “health insurance business” as a distinct class, separate from life and other general insurance business. Health insurance is defined as covering contracts providing sickness benefits or medical and health expense coverage and expressly includes personal accident and travel insurance where those coverages are provided.
Earlier, health insurance was treated as part of general insurance as per the combined reading of the definitions of “general insurance” and “miscellaneous insurance”. This has a direct bearing on ongoing litigation under GST. General insurers have argued that supplies of health insurance to Special Economic Zones (SEZs) are zero-rated, building on the position that “general insurance business” includes health insurance. Once health is treated as a separate class, that argument becomes more complex.
The Bill introduces a comprehensive definition of “insurance business” and “insurance contract”.
The express link between premium, risk assumption and contingent events provides a self-contained benchmark for when an arrangement will be treated as an insurance contract for regulatory purposes. This will be particularly relevant for products at the boundary between insurance and other financial services or “assurance‑type” offerings, where the factual allocation of risk and contingent payment triggers will now be tested against a clearer statutory formulation.
The Bill substantially updates the definition of “insurance intermediary” to include managing general agents (MGAs), reflecting global market practice where MGAs may hold delegated underwriting authority, product design roles or claims‑handling functions under regulatory oversight.
In parallel, the Bill:
This is in line with the recommendations of the think tanks and policy groups to allow MGAs to underwrite within set limits, such as only up to a defined sum assured or in specific product lines. MGAs are now explicitly regulated intermediaries, which clarifies the legal basis for intermediaries performing functions beyond pure distribution, such as underwriting or portfolio management under delegated authority.
The Bill revises the framework on who may carry on insurance business in India, with a specific focus on reinsurance and foreign entities.
Key elements include:
This preserves space for domestic insurers as customer-facing entities while deepening the reinsurance pool behind them.
The Bill introduces several measures aimed at easing regulatory and transactional burdens while maintaining prudential safeguards.
The minimum net owned fund for foreign companies engaged in reinsurance business through Indian branches is reduced from ₹5,000 crore to ₹1,000 crore, encouraging more foreign reinsurers to open branches while retaining substantial capital.
The prior‑approval threshold for share transfers is raised from 1% to 5% of paid‑up equity capital, considering holdings of an individual, firm, group or body corporate under the same management. This eases routine minority transactions while preserving oversight of significant changes.
Policy and claims records may be maintained in electronic form. Insurers are to endeavor to issue policies above the specified thresholds in electronic form and to submit policy and claims data concurrently.
Collectively, these changes reduce mechanical compliance burdens and align the Insurance Laws with contemporary business and technology practices.
The Bill significantly enhances the powers of the insurance regulator and modernises the framework for corporate restructurings in the sector.
The regulator’s direction‑issuing power is broadened to cover both insurers and insurance intermediaries, where necessary in the public interest, to prevent conduct detrimental to policyholders or prejudicial to insurers/intermediaries, or to secure proper management.
If the Authority believes an insurer carrying on insurance business is acting in a manner likely to prejudice policyholders, it may, after hearing the insurer, supersede the board or management/committee and appoint an Administrator for up to one year, extendable with recorded reasons. This power, earlier limited to life insurers, now extends to all insurers.
No insurance or non-insurance business of a company may be transferred or amalgamated with an insurer’s insurance business except under a scheme approved by the Authority, subject to ongoing compliance and regulatory conditions. The Authority may, by regulations, specify the manner, procedure and conditions for schemes of arrangement, amalgamation, transfer, merger, demerger and reverse merger involving insurers and non-insurance companies.
The requirement that insurers and insurance co-operatives have the sole purpose of carrying on specified classes of insurance business, and the prohibition on common directors/officers across insurers in the same class and certain financial institutions (subject to limited exemptions), is retained to preserve license segregation.
The IRDA Act is amended to allow the Authority to:
A Policyholders’ Education and Protection Fund is created, to which penalties and specified sums are credited, and which must be used for policyholder education and protection in accordance with regulations.
The Bill substantially reworks the penalty architecture.
Insurers and insurance intermediaries who fail to furnish documents/returns, comply with directions, maintain solvency margins, or comply with directions on insurance treaties under the Insurance Act or IRDA Act are liable to a penalty of up to ₹1 lakh per day of failure, capped at ₹10 crore.
In determining penalties under the Insurance Act or IRDA Act and regulations, the Authority must consider the nature, gravity and duration of default, repetitive conduct, disproportionate gain, loss to policyholders, the number of policyholders impacted, remedial actions, and deterrence needs. The person concerned must be allowed to be heard, and each penal action must be disclosed by press release on the Authority’s website within 30 days.
We trust you will find this an interesting read. For any queries or clarifications please write to us at insights@elp-in.com or write to our authors:
Stella Joseph, Partner – Email- StellaJoseph@elp-in.com
Anushree Kothari, Senior Associate – Email- anushreekothari@elp-in.com
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