Parliament Passes Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025

1. Introduction and Context

The Rajya Sabha passed the landmark “Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025” on December 17, 2025, following its approval by the Lok Sabha on December 16. This legislation represents one of the most significant financial reforms in India's history, aimed at achieving the vision of “Insurance for All by 2047.”

By amending the Insurance Act (1938), the Life Insurance Corporation (LIC) Act (1956), and the IRDA Act (1999), the government has fully opened the doors to global capital to improve insurance penetration, which stood at a modest 4% in 2022-23 and slightly dipped to 3.7% in 2023-24.

2. Key Provisions of the Bill

A. 100% Foreign Direct Investment (FDI)

1. The Shift: The FDI limit in the insurance sector has been hiked from 74% to 100%.

2. Operational Freedom: Foreign companies can now set up wholly-owned subsidiaries in India without the mandatory requirement of finding an Indian joint venture partner.

3. Safeguard: Despite 100% ownership, the Bill mandates that at least one top executive (Chairperson, MD, or CEO) must be an Indian citizen.

B. Structural and Capital Reforms

1. Mergers and Acquisitions: The Bill permits the merger of non-insurance companies with insurance firms, providing significant operational flexibility and easier exit/entry routes for investors.

2. Reduced Capital Entry Barrier: For foreign re-insurers, the Net Owned Fund (NOF) requirement has been slashed from ₹5,000 crore to ₹1,000 crore. This is expected to attract smaller, specialized global players.

3. Cooperative Models: The minimum paid-up capital requirement of ₹100 crore for insurance cooperative societies (life, general, or health) has been removed to encourage community-based insurance models.

C. Regulatory and Governance Enhancements

1. Empowered IRDAI: The Insurance Regulatory and Development Authority of India (IRDAI) has been granted SEBI-like powers, including the authority to order disgorgement of unlawful gains and oversee the remuneration/commissions of agents.

2. Leadership Tenure: The age cap for IRDAI whole-time members has been increased from 62 to 65 years, aligning it with the Chairperson’s retirement age.

3. One-Time Registration: Intermediaries will now benefit from a one-time registration process instead of periodic renewals, improving the Ease of Doing Business.

D. Data Protection and Policyholder Interests

1. Digital Compliance: Companies must strictly adhere to the Digital Personal Data Protection (DPDP) Act. Stricter KYC and data-safeguarding norms are now mandatory.

2. Protection Fund: The Bill establishes a Policyholders’ Education and Protection Fund to safeguard consumer interests and improve financial literacy regarding insurance.

3. The Government’s Defense (Union Finance Minister Nirmala Sitharaman)

The Finance Minister emphasized that these reforms are not an "afterthought" but the result of two years of structured consultation with 13,000+ stakeholders. Key points included:

1. Employment: Since raising FDI to 74%, jobs in the sector tripled from 30.14 lakh (2014-15) to 88.17 lakh (2024-25). 100% FDI is expected to further boost formal employment.

2. Lower Premiums: Increased competition among more players will naturally lead to a drop in premium rates for the common man.

3. Retention of Funds: She clarified that while ownership may be foreign, premiums collected from Indian customers must stay in India to meet solvency requirements (1.5 ratio).

4. Empowering LIC: The Minister highlighted that LIC’s AUM grew to ₹54.52 lakh crore in 2024-25, and the Bill actually empowers LIC to manage overseas operations and zonal offices more efficiently.

4. Opposition Concerns and Objections

The Opposition, including members from Congress, TMC, and DMK, raised several critical points:

1. Data Privacy: Congress MP Shaktisinh Gohil expressed fear over sensitive data (Aadhaar, PAN) falling into foreign hands, potentially leading to digital fraud.

2. Economic Sovereignty: DMK MP Kanimozhi NVN Somu termed the move "daylight robbery," arguing that a market worth $600 billion is being handed to foreign investors, potentially weakening domestic PSUs.

3. Select Committee Demand: Opposition parties demanded the Bill be sent to a Select Committee for deeper scrutiny, which the government rejected.

4. Naming Objection: Several members objected to the Hindi nomenclature (Sabka Bima Sabki Raksha) in a central legislation.

5. Concurrent Reform: Repeal of 71 Obsolete Laws

Alongside the Insurance Bill, the Rajya Sabha passed the Repealing and Amending Bill, 2025.

1. Total Repeals: 71 outdated laws (e.g., Indian Tramways Act, 1886 and Levy Sugar Price Equalisation Fund Act, 1976) were scrapped.

2. Objective: To remove the "colonial mindset," correct drafting errors, and enhance the Ease of Living.

6. Importance for Competitive Exams

1. Goal: "Insurance for All by 2047."

2. FDI Limit: Increased from 74% to 100%.

3. Regulatory Body: IRDAI (now with enhanced enforcement powers).

4. Key Statutory Changes: Amendments to Insurance Act 1938, LIC Act 1956, and IRDA Act 1999.

5. Solvency Ratio: All insurers must maintain a minimum ratio of 1.5 (Assets vs. Liabilities).

Conclusion

The passage of the Sabka Bima Sabki Raksha Bill, 2025 marks a shift from a partnership-based model to a fully liberalized insurance market. While it promises massive capital infusion and technological upgrades, the regulatory challenge will be to ensure data privacy and maintain the dominance of trust-based public institutions like LIC.