Cabinet Clears 100 Per Cent Foreign Ownership in Insurance, Marking A Landmark Reform For The Sector

The Union Cabinet has approved a sweeping reform that will allow foreign companies to own 100 per cent of an Indian insurance business, marking one of the biggest shifts in the sector’s regulatory landscape in decades. The proposal will be placed before Parliament through the Insurance Laws (Amendment) Bill 2025, listed for consideration in the ongoing Winter Session. The move follows the finance minister’s earlier indication that the foreign investment ceiling, currently at 74 per cent, needed revisiting to support a rapidly expanding market.

A Larger Capital Pipeline For Indian Insurers

India’s insurance industry has drawn roughly Rs 82,000 crore in foreign investment so far, but policymakers believe the sector needs deeper financial muscle to widen coverage and improve service delivery. By opening the door to full foreign ownership, the government expects global players to commit capital more freely and participate more actively in long-term expansion. Industry watchers say the decision clears a long-pending hurdle.

Debashish Banerjee, partner at Deloitte India, notes that while the intent was signalled earlier in the year, the Cabinet’s nod provides the certainty investors were waiting for. He points out that several international insurers have been exploring India as a permanent base and that clarity on ownership rules could encourage them to move faster. As the accompanying regulations are fleshed out, he expects investor confidence to rise and sectoral growth, governance practices, and inclusion efforts to reinforce one another.

Rushabh Gandhi, MD and CEO of IndiaFirst Life Insurance, describes the reform as a structural shift that recognises the industry’s long-term promise. He believes it will bring in fresh capital and spur product innovation, though he tempers expectations about immediate business impact. India’s life insurance market still relies heavily on local distribution strength, he observes, and the advantages of shared ownership between Indian and foreign partners may diminish under a 100 per cent FDI structure. As a result, foreign insurers may benefit strategically, but the transition on the ground is likely to unfold gradually rather than dramatically.

What The New Framework Envisions

Beyond raising the foreign investment ceiling, the government has sketched out a wider set of changes aimed at easing how insurance companies operate and enter the market. One of the key ideas on the table is lowering the paid-up capital needed to start an insurance business, a move that could encourage more home-grown as well as international players to set up shop. Another proposal is a composite licence, which would allow a single insurer to offer multiple lines of business instead of having to secure separate permissions for each category—a shift that could simplify operations and reduce compliance layers.

The reform package also touches the country’s largest insurer. The LIC board may soon have greater room to take routine decisions on its own, including matters like branch expansion and staffing. The intention is to free the organisation from approvals that slow down day-to-day functioning, and to give it the flexibility needed in a sector that is becoming more competitive by the year.

Amendments to the Insurance Act of 1938 and the Insurance Regulatory Development Authority of India (Irdai) Act of 1999 form part of the broader reform package.

A Boost For Consumers And The Wider Economy

The government maintains that the reforms are designed to offer stronger protection to policyholders by increasing competition and raising service standards. More capitalised insurers, it says, should be able to bring better-designed products to the market, speed up claims processes, and deliver a more consistent customer experience. A larger and more efficient industry is also expected to contribute to job creation.

The wider reform push is ultimately linked to the government’s long-standing goal of making insurance accessible to every household by 2047. The old legal framework, anchored in the Insurance Act of 1938, will continue to guide the sector, but officials now acknowledge that the industry has grown far bigger and more complex than what the original law ever imagined. The upcoming amendments are meant to bring the rules in line with today’s realities and prepare the ground for an insurance market that looks very different from the one of earlier decades.

The Bill’s progress in Parliament will determine how quickly the sector can shift to this new regime, but the Cabinet’s decision has already set the stage for a significant transformation in India’s insurance landscape.