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
Why It Matters
Background
History & Context
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
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 CorrectConsider 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 FollowingMatch 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 & ReasonAssertion (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: