The Indian insurance sector is poised for significant growth following the passage of the Insurance Laws (Amendment) Bill, 2025, by Parliament. The bill allows for 100% foreign direct investment (FDI) in insurance companies, up from the previous limit of 74%. This increase is expected to improve access to capital, support solvency requirements, and boost competition in the sector. The reforms will particularly benefit smaller and mid-sized insurers, which have historically faced capital constraints.
The bill amends key laws governing the insurance sector, including the Insurance Act, 1938, the Life Insurance Corporation Act, 1956, and the IRDAI Act, 1999. The higher FDI limit will ease capital constraints for insurers, enabling them to meet increasingly stringent solvency requirements. According to CareEdge Ratings, the reform could also support consolidation in the insurance industry.
Another significant provision in the bill reduces the net-owned fund requirement for foreign reinsurers from Rs 5,000 crore to Rs 1,000 crore. This reduction will lower entry barriers for international and specialized reinsurance players, increasing competition and expanding reinsurance capacity in the domestic market. CareEdge Ratings notes that this move will ensure that the required capital remains within India to support local insurers.
The insurance sector is expected to deliver a satisfactory operating performance in Q3 FY26, with premium growth momentum likely to strengthen. However, profitability metrics may remain under pressure due to GST input tax credit losses, elevated commission payouts, and regulatory adjustments. The industry body has hailed the bill, stating that it brings clarity, confidence, and long-term capital into a growing sector that plays a central role in strengthening financial security.
The bill also introduces greater regulatory flexibility for insurers operating in Special Economic Zones and International Financial Services Centres within SEZs. This gives the central government the power to frame customized insurance regulations for these zones, promoting cross-border insurance activity and strengthening IFSCs as regional insurance hubs. Overall, the passage of the Insurance Laws (Amendment) Bill, 2025, is expected to have a positive impact on the Indian insurance sector, improving access to capital, increasing competition, and strengthening the overall insurance ecosystem.