FM announces only one reform from new Insurance Bill, others left out

Union Budget 2025

In the Union Budget 2025 presentation, Finance Minister Nirmala Sitharaman announced only one reform from the much anticipated Insurance Amendment Bill -- an increase in the Foreign Direct Investment (FDI) limit for the insurance sector from 74 percent to 100 percent. However, several other proposed changes were left unaddressed.

"The increase in FDI requires parliamentary approval, which is why it was introduced in the budget," explained Nilesh Sathe, a former member of IRDAI.

"The other reforms, for reasons unknown to me, have been deferred, but will likely be introduced in the very near future," he added.

One of the key reforms was the introduction of a composite license, which would have allowed insurers to offer both life and non-life insurance products under a single entity, streamlining operations and potentially reducing costs for companies like Life Insurance Corporation of India (LIC). Additionally, the bill aimed to ease regulatory requirements, particularly those concerning company directors, to foster a more conducive environment for business operations.

Furthermore, the bill proposed a reduction in capital requirements for foreign re-insurers, dropping the minimum funds from Rs 5,000 crore to Rs 1,000 crore. For micro-insurance firms targeting underserved areas, the entry capital was suggested to be reduced to as low as Rs 50 crore, subject to approval by the Insurance Regulatory and Development Authority of India (IRDAI).

Another significant reform was the proposal to allow insurance agents to sell policies from multiple insurance companies, aiming to democratise the distribution of insurance products, enhance competition, and increase consumer choice.

The insurance sector had also been advocating for separate tax exemption windows outside of Section 80C for life insurance and Section 80D for health insurance to make these products more appealing to the general public.

However, these expectations were not met in the budget announcements.