January 21, 2026
India Updates Insurance Framework, Allowing Full Foreign Ownership and Governance Changes
Brief Overview
- On December 30, 2025, the Indian government notified the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025 (Insurance Amendment Act), ushering in a significant phase of regulatory reform for India’s insurance sector. The Act raises the foreign direct investment (FDI) limit to 100% (earlier 74%), strengthens consumer protection, and enhances regulatory oversight.
- Thereafter, on December 31, 2025, the government notified the Indian Insurance Companies (Foreign Investment) Amendment Rules, 2025 (2025 Amendment Rules), to amend the Indian Insurance Companies (Foreign Investment) Rules, 2015.
- These amendments could attract global capital, modernize the insurance sector, and improve competitiveness.
Comparison of the 2025 Amendment Rules with Erstwhile Rules
- A comparative summary of the key regulatory changes introduced under the 2025 Amendment Rules is tabulated below.
| Aspect | Earlier Rules (Pre-2025) | New Rules (2025 Amendment) |
| FDI Cap | 74% | 100% (i.e., permitting full foreign ownership, as per the amended Insurance Act 1938.)
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| Governance Requirements | Stringent – Board composition required that majority of its directors, KMPs and at least one among the Chief Executive Officer (CEO)/ Managing Director (MD)/ Chairperson of its Board, must be resident Indian citizen (i.e., majority Indian residents at Board and foreign nationals could hold key management positions).
| Liberalised – Only requires one among the CEO, MD or Chairperson of its Board, to be resident Indian citizen (i.e., only key management role/ top leader must be resident Indian citizen). |
| Regulatory Alignment | Referenced to Foreign Exchange Management (Transfer or Issue of Security by Person Resident Outside India) Regulations, 2000. | Now harmonized with Insurance Act, 1938 and Foreign Exchange Management (Non-debt Instruments) Rules, 2019 for consistency.
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| Ease of Doing Business for Insurance Intermediaries With Majority Foreign Investment | Insurance intermediaries with majority foreign investments inter alia were required to undertake the following: 1) Seek prior approval of Insurance Regulatory & Development Authority of India (IRDAI) for dividend distribution. 2) Not make Inter-group payment beyond necessary or as permitted by IRDAI. 3) Adhere to the board composition as specified by the IRDAI. | In order to ease the compliance burdens and focus on self-governance, these conditions are now omitted. |
- Collectively, the above changes reflect a shift toward a more open, flexible, and investor-friendly regulatory environment. Additionally, the Insurance Amendment Act has also brought about the following critical changes:
- Lower Minimum Net Owned Fund (NOF) Requirement for Foreign Reinsurance Branches (FRBs): The NOF requirement for FRBs is reduced to INR 10 billion from the existing INR 50 billion, thereby easing entry for foreign reinsurers.
- Enhanced Regulatory Oversight: To improve governance standards for insurers and intermediaries, the IRDAI will have stronger powers to enforce compliance and protect policyholders. This also includes powers to disgorge wrongful gains from insurers and intermediaries who profit from illegal practices like mis-selling or excessive commissions, ensuring these funds are returned to affected policyholders.
- Enhanced Limits for Transfer of Shares: To provide ease of doing business, the threshold for seeking IRDAI’s approval for transfer of shares is enhanced to 5% (from 1% earlier) of the paid-up share capital of the insurer.
- Policyholder Protection: To improve awareness and safeguard consumer interests, the Act mandates creation of a Policyholders’ Education and Protection Fund (Fund) to be administered by IRDAI. The Fund will be utilized to protect the interests of policyholders and educate them. It will be funded by: (i) donations or grants from the central and state governments, IRDAI, companies, or any other institutions; (ii) sums received as penalties by the IRDAI; and (iii) any other sums specified by regulations.
A&M’s Key Takeaways
- At the core of the reform is the increase in the FDI cap, enabling global insurers to fully own and operate in India. This is expected to facilitate the inflow of fresh capital, adoption of advanced technologies, integration of international best practices and accelerated innovation. The relaxation of board requirements is also likely to enhance operational flexibility for foreign investors, while maintaining accountability through the continued presence of at least one senior leadership representative.
- The lowering of entry barriers for FRBs creates a more accessible and attractive environment for global reinsurers to establish operations in India. This is expected to strengthen the insurance sector’s risk‑management capacity and underwriting expertise, while also facilitating the adoption of global best practices. A broader reinsurer base should also support market diversification, reduce concentration risks, and enable more competitive reinsurance offerings for Indian insurers.
- These reforms reflect the government’s commitment to the progressive liberalization of India’s insurance sector with an aim to expand insurance coverage, attract global capital, and strengthen consumer protection while aligning with IRDAI’s long-term strategy and ambitious national mission of “Insurance for all by 2047”
