Sabka Bima Bill: Why 100 pc FDI push may not fix India's insurance woes
New insurance law opens door to full foreign ownership and tougher regulation, but weak incomes, agent dominance, poor products still cap growth and coverage
The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025, passed by the Lok Sabha and Rajya Sabha in quick succession, seeks to address two issues — falling net FDI inflows and abysmally low insurance penetration. For this, it amends three laws: the Insurance Act of 1938, Life Insurance Corporation (LIC) Act of 1956, and Insurance Regulatory and Development Authority (IRDA) Act of 1999.
Two of the key elements of the Bill further liberalise the FDI regime for insurance by raising the cap from 74 per cent to 100 per cent and empowering the Insurance Regulatory and Development Authority of India (IRDAI) to regulate the insurance market, with power to search and seize, and even to disgorge wrongful gains.
Fresh push to FDI, despite poor record
The insurance sector was opened up to FDI in 1999 with a cap of 26 per cent, which was raised to 49 per cent in 2015 and 74 per cent in 2021. Now it will go up to 100 per cent.
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How has that impacted FDI inflows to the sector? The only official account is from March 2024 when the then secretary of the Department of Financial Services (DFS), Vivek Joshi, stated that Rs 53,900 crore of FDI inflows were received in the nine years between December 2014 and January 2024.
This is small change compared to the equity FDI inflows during this period. For example, the Department for Promotion of Industry and Internal Trade (DPIIT) data show that, during FY15-FY24, equity FDI inflow was Rs 33,03,104 crore. The FDI inflow to insurance was just 1.6 per cent of it.
The low FDI inflow and the futility of raising the cap have been a subject of considerable debate. But now that India has seen net FDI dropping to USD 959 million in FY25 — consistently falling from USD 43.9 billion in FY21 — there is a new urgency to further liberalise the insurance sector.
Agent-centric insurance model
Industry experts have long argued that foreign insurance companies are reluctant to set up shop in India because of its deeply entrenched and institutionalised agent-driven insurance business model. Some estimates suggest 50 per cent or more businesses are brought in by agents’ networks.
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This model comes in the form of directly accessing insurance. Despite the liberalisation, foreign insurance companies have shown a preference for joint ventures and small-ticket investments. They may have deep pockets and advanced technologies, but they need to adopt the same (distribution) model given that Indian insurance policy buyers, too, are deeply invested in and rely on human interface and assurance of insurance agents.
That model isn’t going away anytime soon. On Tuesday (December 16), while piloting the Bill in the Lok Sabha, Union Finance Minister Nirmala Sitharaman assured the House that her government was committed to protecting all insurance agents. What that would mean for a foreign company bringing in 100 per cent FDI remains to be seen.
IRDAI crackdown on intermediaries
In this context, a provision empowering the IRDAI to limit commissions to agents and intermediaries is reassuring. Intermediaries include brokers, consultants, corporate agents such as banks, NBFCs and other entities selling insurance products for others.
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However, empowering the IRDAI to crack down on intermediaries (which includes banks, NBFCs and other fintechs), through search and seizure, breaking open doors and lockers, disgorgement of wrongful gains and others is bound to cause unease in the industry.
Here is yet another factor that may require a relook.
The Indian Insurance Companies (Foreign Investment) Rules of 2015 (last amended on May 19, 2021) says, “The insurance intermediary that has majority shareholding of foreign investors” shall appoint “at least one” top official (among chairman, CEO, principal officer or MD) who is an Indian citizen.
The other big development that necessitated the Bill is poor insurance coverage. Given that insurance is considered the panacea for most, if not all, financial vulnerabilities in neoliberal economics, this does seem an important consideration.
Poor insurance penetration
The DFS's annual reports show that insurance penetration (life and non-life insurance premiums paid) has barely moved forward in the past decade. It increased from 3.3 per cent of the GDP in FY15 to 3.7 per cent in FY25 (2.8 pc for life and one pc for non-life). In comparison, the average for OECD countries (a mix of developed and developing economies) was 6.2 per cent of their GDP in 2024.
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Growth in investment by the insurance industry, the DFS report shows, is also very low, rising from Rs 24.08 lakh crore by FY15 to Rs 67.57 lakh crore by FY24.
Meanwhile, the last GST rejig (from September 22, 2025), which waived off 18 per cent tax on all insurance products, has led to a dramatic rise in insurance premium income. Industry reports say a 20 per cent jump (year-on-year) in October and 24 per cent in November.
Consumers’ interests overlooked?
Not all are happy with the Bill, though.
Dhirendra Kumar, founder and CEO of Value Research, says the Bill completely ignores the consumers. To him, the real issues are poorly designed insurance products and low returns. “What India really needs is tough regulation of the industry”, he notes.
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There is another fundamental aspect that has been overlooked.
How will a liberalised FDI regime in insurance help deepen insurance penetration when the income of people is not rising? Quality jobs are shrinking, wages have remained stagnant for years — 813.5 million people, or 58 per cent of the total population, are being fed with “free” rations since April 2020, and millions of women (spread over 16 states) and farmers are getting cash handouts.
Once the incomes of households are raised, that will automatically raise the insurance penetration — irrespective of the FDI cap.
