Composite licensing still on hold even as govt approves 100% FDI in insurance

Cabinet approves 100% FDI in insurance

The Centre on December 12 has moved ahead with only one piece of its long-discussed insurance reform package -- raising FDI to 100 percent -- while leaving other proposals from the Insurance Amendment Bill, including composite licensing, waiting in the wings.

The Union Cabinet, chaired by Prime Minister Narendra Modi, cleared the Bill for introduction in Parliament during the Winter Session. The amendment is aimed at attracting stable long-term investment, facilitating technology transfer, and helping deepen insurance penetration in line with the government’s goal of “Insurance for All by 2047.”

The decision confirms Moneycontrol’s earlier reporting that the government was preparing to push through an FDI hike in the Winter Session.

By lifting the FDI cap, the government is looking to draw substantial long-term foreign capital into the sector.

Officials said the move will help insurers strengthen their balance sheets, improve solvency levels, and expand coverage in a country where insurance penetration remains low.

Full foreign ownership is also expected to sharpen competition, improve product innovation, and potentially lower costs for policyholders, according to the government.

However, many of the wider reforms originally envisaged in the draft Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025 were not taken up.

Among these was the proposal to create a dedicated Policyholders’ Education and Protection Fund, designed to improve awareness and enhance safeguards for policy buyers.

The government had also considered empowering the Insurance Regulatory and Development Authority of India (IRDAI) to order the disgorgement of wrongful gains made by insurers or intermediaries.

Another major provision under examination was the creation of a digital public infrastructure framework for the insurance sector, intended to secure policyholder information and ensure that such data is accessible in a reliable and protected manner.

Several ease-of-doing-business measures that formed part of the larger reform package were also excluded from the version approved by the Cabinet. These included a shift to a one-time, perpetual registration framework for insurance intermediaries, a move that would significantly reduce compliance burdens and improve continuity of operations.

The draft Bill had also proposed raising the threshold for obtaining IRDAI approval for share transfers from the current 1 percent to 5 percent of paid-up capital -- a measure aimed at facilitating smoother capital restructuring for insurers.

Additionally, the net-owned fund requirement for foreign reinsurers was proposed to be reduced from Rs 5,000 crore to Rs 1,000 crore to enable more global reinsurers to set up operations in India and expand domestic reinsurance capacity.

The Life Insurance Corporation of India (LIC) was further expected to be granted expanded operational autonomy to establish zonal offices overseas and align its foreign business with the regulatory requirements of host countries. None of these proposals were cleared at this stage.

The broader Bill also contemplated improving regulatory governance by introducing a standard operating procedure for regulation-making under the IRDAI Act.

This would have created a more structured and transparent rule-making process. In addition, the framework for levying penalties on insurers and intermediaries was proposed to be rationalised to ensure that enforcement was transparent, proportionate, and predictable. These provisions too have not been taken forward in the Cabinet-cleared version.

Industry reactions indicate that while the FDI hike is a significant development, the remaining reforms are equally critical for the long-term transformation of the sector.

While composite licensing, which would allow a single entity to sell life, general and health products, has not been taken up at this stage, industry participants say the broader reform matrix remains significant.

According to Balachander Sekhar, Co-founder and CEO of RenewBuy, the shift to 100 percent FDI marks “a decisive step” that could bring global capital, new underwriting frameworks, and advanced claims technologies into the system. He said this would enhance risk assessment, speed up claims, and strengthen customer engagement.

Sekhar added that composite licensing, whenever implemented, would mark a “visionary shift” by enabling insurers to offer holistic protection under one roof, instead of selling products in silos. He also noted that proposals such as rationalised capital norms and reduced entry barriers for specialised players could expand insurance access in underserved regions.

However, other major reforms that had been part of the broader legislative revamp of the Insurance Amendment Bill, such as composite licences (allowing a single entity to sell life, general and health products), lower minimum capital requirements for select categories, and easier entry norms for specialised players have not been taken up.

As Moneycontrol reported earlier, these proposals were under active examination but were unlikely to make it to the final draft immediately. That expectation held true, with the Cabinet choosing to clear only the FDI component for now.

The decision fits into the government’s wider push to modernise financial services and attract global investment. The Finance Ministry had earlier indicated its intent to introduce a comprehensive reform bill during the Winter Session, with the FDI hike forming a key part of the package.

With the Cabinet’s approval now secured, the Insurance Amendment Bill will be introduced in Parliament for debate and passage. Once enacted, the FDI reform alone is expected to usher in a new phase of capital-driven expansion in the industry.