The government is betting that a mix of tax relief and market-opening reform can fix one of the country’s most stubborn gaps: Insurance coverage. A new bill that allows 100 percent foreign ownership of insurers is expected to draw Rs 35,000-70,000 crore into the sector while a recent exemption of insurance premiums from the goods and services tax has reduced costs for consumers—steps analysts say could help raise India’s insurance penetration, which stands at 3.7 percent, well below the global average of 7 percent.
The push comes as the insurance regulator sharpens its goal of Insurance for All by 2047.
The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025—passed by Parliament on Wednesday—allows 100 percent Foreign Direct Investment (FDI) in insurance, up from 74 percent currently. It also eases rules for foreign reinsurers, simplifies merger norms and introduces consumer-focused measures such as a policyholders’ education and protection fund and enhanced data protection provisions.
“Full foreign ownership can attract long-term patient capital, encourage new global entrants, and accelerate product, technology, underwriting and distribution innovation,” says Shruti Ladwa, partner & insurance leader, EY India.
“At the same time, lower GST improves affordability by lowering the premium burden for consumers, particularly in price-sensitive mass and rural segments.”
Together, she feels, these reforms can strengthen supply and stimulate demand, expanding coverage in underpenetrated markets. “While the impact will be gradual, the policy alignment is far more conducive to sustained growth in penetration than earlier reform cycles.”
The insurance industry’s liberalisation has unfolded in cautious steps over the past two decades. The sector was first opened to private players in 2000, with foreign investment capped at 26 percent. That limit was raised to 49 percent in 2014, allowing greater foreign capital while keeping management control in Indian hands. In 2021, the cap moved to 74 percent, enabling foreign partners to take majority stakes in joint ventures (JVs).
“We saw an influx of roughly Rs 35,000 crore between 2021 and 2024,” says Debashish Banerjee, partner, Deloitte India.
“This time around, we believe this reform should attract more. Between 2024 and 2027, we anticipate investments similar to or possibly double the previous three-year period, supporting market expansion.”
While successful in attracting significant capital, the earlier reform did not fundamentally change the sector. Several JVs remained uneasy marriages, built more around regulatory necessity than shared strategy.
“After the FDI cap was raised to 74 percent, select global insurers increased their stakes in JVs. However, restrictions on full ownership and tight guardrails around management and control constrained deeper, long-term strategic commitments by foreign players. As a result, the reform drove incremental improvements rather than a structural shift in the sector,” says Ladwa.
She expects the move to raise FDI to 100 percent, along with the relaxation of management-related restrictions, to have a significantly more positive and transformative impact than earlier rounds of FDI liberalisation.
The Bill also expands the scope of the regulator by allowing it to issue sector-specific licences and gives it more power over commissions paid to insurance agents and intermediaries.
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The country’s largest insurer, Life Insurance Corporation (LIC), says the reform enables insurance firms to respond effectively to changing demographic, economic, and social realities. The Bill helps the sector “go beyond traditional products to include retirement security, longevity solutions, health-linked protection, and risk cover for emerging livelihoods”, per a press release.
The Bill is a leap towards a more customer-centric and future-ready insurance ecosystem, according to Tapan Singhel, chairman of General Insurance Council. It recognises that “meaningful insurance penetration cannot be achieved with fragmented data, limited participation or outdated structures. It requires capital, capability, technology and trust to move in unison”.
Industry experts expect the FDI move to help in consolidation, mergers and restructuring of shareholding patterns across the industry. “We also anticipate large India-headquartered companies to enter the sector, either all by themselves or as a JV to provide the strategic partnership and distribution knowhow to the foreign company,” says Deloitte’s Banerjee.
He says the move will also bring leading global practices around product and corporate governance. This—coupled with hopefully new business models with distribution partners—could lay the foundation for a new wave of insurers that can help the industry mature and drive the next level of growth and penetration, he says.
The sector’s expansion will also create more employment opportunities, including more leadership roles, as new companies will expand the market.
With the industry open to global players, the existing players will have to step up their game and play to the international standards. This is likely to lead to new features, newer products, price advantage, more bundled products to choose from, and better management of claims and grievances—developments that will help policyholders.
The Insurance Regulatory and Development Authority of India has also put in place rules around surrender value, capping of fees for ULIP products etc. “These have been designed keeping the policyholders’ interest at the core and is unlike any other markets,” according to Banerjee.
“Even with new insurance companies coming in, these rules do not change and via the grievance process as well as ombudsman channel, policyholders have a clear pathway to seek an intervention.”
Yet challenges remain.
Opening the door to foreign capital does not automatically solve some of the sector’s deeper problems. Distribution remains uneven, claims handling continues to be a source of frustration for many customers, and trust in insurers is fragile with high mis-selling complaints. Limited financial literacy and suboptimal advisory services have contributed to concerns around mis-selling in the market, according to a 2024 McKinsey report.
The latest reforms mark the boldest attempt yet to push the sector beyond incremental change, say experts, but the results might take years to fully show up in coverage numbers.
First Published: Dec 19, 2025, 11:56
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