The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025 (“2025 Amendment”) was duly passed by both Houses of Parliament in mid-December and received Presidential assent on December 20, 2025.
The structure of the 2025 Amendment consists of four chapters: Chapter I sets out preliminary provisions; Chapter II details amendments to the Insurance Act, 1938 (“Principal Act”); Chapter III addresses changes to the Life Insurance Corporation Act, 1956 (“LIC Act”); and Chapter IV pertains to amendments made to the Insurance Regulatory and Development Authority Act, 1999 (“IRDA Act”).
The 2025 Amendment represents a significant recalibration of India’s insurance regulatory framework, with far-reaching implications for insurers, intermediaries, investors, and other market participants.
The Principal Act was enacted to consolidate and amend the laws governing the business of insurance in India, thereby establishing a comprehensive statutory framework for the regulation of insurers and insurance contracts. In the post-independence period, the insurance sector remained predominantly state-controlled, with life and general insurance businesses being nationalised under the LIC Act and the General Insurance Business (Nationalisation) Act, 1972. A significant structural shift occurred following economic liberalisation, when private sector participation was permitted and the IRDA Act was enacted to establish an independent regulator for the insurance sector. This reform phase also allowed foreign direct investment in Indian insurance companies, initially capped at 26%. Subsequently, the foreign investment regime underwent calibrated liberalisation through a series of legislative amendments, increasing the FDI cap from 26% to 49% and thereafter the cap was further raised to 74% under the automatic route. In parallel, 100% foreign direct investment has been permitted in insurance intermediaries, reflecting a policy intent to attract global capital, technology, and distribution expertise.
The 2025 Amendment marks a substantial liberalisation of India’s insurance sector by raising the foreign direct investment cap in insurance companies from 74% to 100% under the automatic route, thereby implementing the Union Budget 2025–26 announcement. This reform eliminates the mandatory requirement for a domestic joint venture partner and is anticipated to reduce entry barriers for international insurers, allow existing foreign shareholders to consolidate their ownership, and support the inflow of long-term capital, global expertise, and innovative insurance products into the Indian market. The amendment underscores a clear policy commitment to establishing the insurance sector as a vital driver of economic growth, competition, and increased insurance penetration.
For the first time, the Insurance Amendment Act, 2025, introduces a statutory definition of “insurance business”, a term that was previously undefined under the Insurance Act, 1938. Under the Bill, the term primarily encompasses the business of effecting insurance contracts. Importantly, the definition also empowers the Central Government, in consultation with the Insurance Regulatory and Development Authority of India (“IRDAI”), to notify additional forms of contracts that insurers may undertake. While this introduces a degree of flexibility, the scope of these additional contracts remains uncertain.
To further enhance the regulatory framework and reduce procedural bottlenecks for insurers, the 2025 Amendment raises the threshold for prior IRDAI approval in respect of share capital transfers in insurance companies. Under the existing regime in the Principal Act, any transfer of shares exceeding 1% of the paid-up equity capital of an insurer required the prior consent of the IRDAI. The 2025 Amendment amends Section 6A(4)(b)(iii) of the Principal Act to increase this threshold to 5%, thereby ensuring that smaller transfers and routine equity transactions can proceed without triggering mandatory regulatory approval, while IRDAI retains oversight over more substantial changes in shareholding.
Through targeted amendments to the Principal Act and the IRDAI Act, the law empowers the regulator to formulate and revise subordinate regulations governing its operations without the procedural requirement of publishing draft regulations where such changes relate only to internal functioning or are necessary in the public interest [Insurance Act, 1938, Section 114A]. In a further strengthening of its enforcement toolkit, the 2025 Amendment introduces provisions enabling IRDAI to require insurers and intermediaries to disgorge wrongful gains or profits obtained from regulatory violations, thereby aligning its punitive capabilities more closely with those of other financial sector regulators and enhancing protections for policyholders [Insurance Act, 1938, Section 34].
In a significant departure from the earlier regulatory position, the Amendment Act expressly recognises the permissibility of mergers and amalgamations between insurance businesses and non-insurance businesses, subject to the prior approval of the IRDAI [Insurance Act, 1938, Section 35]. This legislative clarification assumes particular significance in light of the decision of the National Company Law Appellate Tribunal (NCLAT) in IRDAI v. Shriram General Insurance Company Limited 2025 SCC OnLine NCLAT 506, where the NCLAT held that, in the absence of an express prohibition under insurance law, mergers between insurers and non-insurance companies could be undertaken in accordance with the Companies Act, 2013.
In summary, the 2025 Insurance Laws Amendment represents a progressive leap forward for the Indian insurance sector, ushering in a new era marked by enhanced regulatory agility and investor confidence. By liberalising foreign direct investment, simplifying compliance requirements, and expanding the scope for corporate restructuring, the amendment is poised to attract greater capital inflows and foster innovation across the industry. Strengthened IRDAI powers and a more rigorous penalty regime further ensure that policyholder interests remain central to the sector’s evolution. These reforms collectively equip insurers, intermediaries, and investors with the flexibility and certainty needed to navigate a dynamic market, ultimately supporting sustainable growth and improved service delivery for all stakeholders.
About the authors: Svadha Shankar is a Partner Designate and Rucha Prabhu is an Associate at Hammurabi and Solomon Partners.
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