MC EXCLUSIVE Composite licensing may not be included in Insurance Amendment Bill to be tabled in Winter Session

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The Insurance Amendment Bill, likely to be introduced in the winter session, will raise the Foreign Direct Investment cap from 74 per cent to 100 per cent while keeping the proposal on composite licensing on hold. Composite licensing may be taken up separately in FY27, though an amendment, government sources told Moneycontrol.

While discussions on composite licensing are currently underway with the Insurance Regulatory and Development Authority of India (IRDAI) and have reached advanced stages, there are certain Reserve Bank of India (RBI) guidelines that need to be factored in. “Composite licensing also involves a complete rethink of regulatory architecture, and there may not be enough time in this session to do justice to that,” the sources cited told Moneycontrol.

Composite licensing, which would allow insurers to operate across life, general and health insurance within one corporate entity, “is not just a legislative change, it will require recalibrating solvency margins, risk models and distribution structures across different lines of business,” said an industry executive at a large private insurer. “That cannot be rushed through in a short parliamentary session.”

Debashish Banerjee, Insurance Head at Deloitte, told Moneycontrol that there is also resistance from large players who already operate both life and general businesses, as composite licensing could make those arms direct competitors.
“That’s a valid concern. But multiple possible scenarios could play out,” he explained.

“First is direct competition when the life and general insurance arms will compete with each other, but that seems quite unlikely in my view. A second scenario would be a possible merger, when the two arms merge under one management team, saving costs and expanding portfolios. The third possible scenario is divestment, when a group may sell one of the arms that isn’t performing well, while retaining and expanding the stronger one. The right choice will depend on parent company boards, not just the individual insurance arms,” he said.

“But all of this will take time to figure out,” he added.

Emails sent to IRDAI and the finance ministry remained unanswered until the time of publishing.

Moreover, there seems to be little clarity on lowering paid-up capital requirements, with industry practitioners of the view that rolling it out may be complex without a fully developed risk-based capital framework, industry sources said.
On the other hand, the government’s immediate focus is on pushing through the FDI enhancement since it’s a clean, straightforward change with industry backing.

There seems to be a broad political consensus on increasing the FDI limit to 100 per cent. Finance Minister Nirmala Sitharaman had said in September that she “hopes to” introduce the Bill in the Winter Session, mentioning only the FDI part of the bill, leaving the rest uncertain.

The Winter Session of Parliament is scheduled to begin on November 25 and run until December 20. According to industry practitioners, this is the simplest amendment to push through, as it was already announced in the Union Budget and has been under discussion for several years.