Polity & GovernancePriority2025-12-16

Sabka Bima Sabki Raksha Insurance Bill Passed

Why focus: GS3 Economy: Act passed ending monopolies. Sets up 'How-Many-Correct' MCQs on 100% FDI automatic route exceptions and IRDAI statutory powers.

In News

What Happened

The Indian Parliament passed the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025 in December 2025. This landmark legislation amends three foundational insurance laws to allow up to 100 percent Foreign Direct Investment (FDI) in the sector under the automatic route. It also introduces major regulatory reforms like relaxed capital requirements and one-time licensing.

Why It Matters

By opening the sector fully to global capital, India expects massive investments, better technology, and global best practices in insurance. This increased competition is designed to make insurance policies more affordable and widespread, directly supporting the national goal of 'Insurance for All by 2047' and building financial resilience for households.

Background

History & Context

The Indian insurance sector has seen progressive but slow liberalization since the landmark Malhotra Committee report of 1994, which recommended private participation. Private entry began in 1999, with FDI capped at 26 percent. This cap was later raised to 49 percent in 2015 and 74 percent in 2021. Despite these steps, India's insurance penetration remained much lower than global averages. The regulatory framework, heavily reliant on the pre-independence Insurance Act of 1938, was viewed as fragmented and restrictive. To address this, the government introduced the Sabka Bima Sabki Raksha Bill in December 2025, shifting towards principles-based regulation and fully opening the doors to foreign capital.

What Changed

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FDI Limit: Increased the Foreign Direct Investment cap in insurance companies from 74 percent to 100 percent under the automatic route.
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Reinsurance Capital: Reduced the Net Owned Fund requirement for foreign reinsurance branches from Rs 5,000 crore to Rs 1,000 crore to attract global reinsurers.
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Share Transfer Approvals: Raised the threshold for requiring prior IRDAI approval for transferring shares of an insurance company from 1 percent to 5 percent of paid-up capital.
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Governance Norms: Modified residency rules so that only one top executive (CEO, MD, or Chairperson) must be a resident Indian citizen, replacing the old rule that required a majority of resident Indian board members.
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Mergers and Acquisitions: Allowed mergers or business transfers between insurers and non-insurance entities for the first time, subject to IRDAI approval.
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Board Supersession: Granted IRDAI the explicit power to supersede the Board of Directors of an insurer and appoint an Administrator if the insurer acts against policyholders' interests.
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LIC Autonomy: Amended the Life Insurance Corporation Act, 1956, granting LIC independent authority to open zonal offices and align its foreign branches with local jurisdiction laws.

What Did NOT Change

Despite the aggressive push for 100 percent FDI and market liberalization, the fundamental existence and public-sector character of state-owned entities like LIC were not abolished or mandated for privatization. Furthermore, IRDAI retained its position as the ultimate gatekeeper and sole regulatory authority for the sector.

Prelims Angle

NCERT Connection

This connects directly to Class 11 Indian Economic Development, Chapter 3: Liberalisation, Privatisation and Globalisation. The policy shift to allow 100 percent FDI is a textbook application of 'Liberalisation' (deregulating domestic industry and removing entry barriers) and 'Globalisation' (integrating the domestic financial sector with global markets). It shows that the 1991 economic reforms are an ongoing process of progressively lifting caps to attract capital and technology.

Common Misconceptions

✗ The Sabka Bima Sabki Raksha Bill mandates the privatization of all existing public sector insurance companies.

✓ The Bill increases FDI limits to spur competition but does not mandate the outright privatization of entities like LIC; it merely grants them greater operational autonomy.

People often equate '100 percent FDI' or 'liberalization' with the complete sale of government-owned assets.

✗ With the new 'ease of doing business' rules, insurance companies can now merge with other companies without regulatory approval.

✓ While the Bill allows mergers between insurers and non-insurance entities for the first time, IRDAI remains the sole approval authority for any such scheme of arrangement.

The stated goal of cutting red tape leads many to assume that critical regulatory checkpoints have been entirely removed.

Practice Questions

Q1

How Many Correct

Consider the following statements regarding the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025: 1. It reduces the net-owned fund requirement for foreign reinsurance branches from Rs 5,000 crore to Rs 1,000 crore. 2. It mandates that the majority of the Board of Directors of an insurance company with foreign investment must be resident Indian citizens. 3. It empowers IRDAI to approve the scheme of arrangement between an insurer and a company not engaged in the insurance business. How many of the above statements are correct?

Q2

Match the Following

Match the legislative act amended by the 2025 Insurance Bill (List I) with the specific provision it introduced (List II): List I: A. Insurance Act, 1938 B. Life Insurance Corporation Act, 1956 C. IRDAI Act, 1999 List II: 1. Granted operational autonomy to open zonal offices and align foreign operations. 2. Empowered the authority to constitute a Policyholders' Education and Protection Fund. 3. Raised the threshold for prior regulatory approval of share transfers from 1 percent to 5 percent. Select the correct code:

Q3

Assertion & Reason

Assertion (A): The Sabka Bima Sabki Raksha Act, 2025 completely removes IRDAI's power to intervene in the internal management of insurance companies to promote ease of doing business. Reason (R): The Act allows foreign direct investment up to 100 percent in Indian insurance companies under the automatic route. Select the correct answer:

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