The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025 (“Amendment Act”), which amends the Insurance Act, 1938 (“Insurance Act”), the Insurance Regulatory and Development Authority of India Act, 1999, and the Life Insurance Corporation Act, 1956, was passed by both houses of Parliament on 16 and 17 December 2025 and received the President’s assent on 20 December 2025. The Central Government has notified 5 February 2026 as the commencement date of the Amendment Act other than in relation to the restriction on common directors and officers of insurers, banks and investment companies. To fully effectuate the amendments, modifications would also be required to the subordinate regulatory framework including the IRDAI (Registration, Capital Structure, Transfer of Shares and Amalgamation of Indian Insurance Companies) Regulations, 2024, the IRDAI (Investment) Regulations, 2016 and the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019. The Amendment Act aims to accelerate the sector’s growth, enhance policyholder protection and improve the ease of doing business for all stakeholders. The key changes being brought about by the Amendment Act are described below:

KEY AMENDMENTS AT A GLANCE

100% FDI permitted in an Indian insurance company with conditions relating to Indian residency requirement for the management and board composition relaxed. Regime for mergers / amalgamations between insurers and non-insurance companies become expressly recognised. The threshold for IRDAI approval for share transfers increased from 1% of the paid-up equity capital to 5%. Restrictions on common directors and officers extended to banks and investment companies unless an exemption is granted by IRDAI to facilitate mergers. An enabling framework introduced allowing the Central Government in consultation with IRDAI to notify a new class of insurance business. Statutory restriction on insurers investing in the shares and debentures of private companies removed, allowing for greater diversification of investment portfolios.

Insurance intermediary registration to remain valid until suspended or canceled, subject to the payment of an annual fee, as opposed to the previous regime where registration had to be renewed every 3 years. Managing General Agents (MGAs) formally included within the definition of “insurance intermediaries,” enabling specialized underwriting and distribution models. Minimum net owned fund requirement for Foreign Reinsurer Branches (FRBs) significantly reduced from INR 5,000 crores to INR 1,000 crores. Statutory basis for the protection and sharing of policyholder information introduced, mandating express consent for sharing data with third parties, subject to certain exceptions. Maximum penalty for non-compliance with insurance laws increased from INR 1 crore to INR 10 crores and IRDAI empowered to order disgorgement of wrongful gains.

1.Permitting 100% Foreign Direct Investment (“FDI”) in Indian insurance companies

In a long-awaited development designed to attract significant capital and global expertise, the Amendment Act increases the FDI limit in Indian insurance companies from 74% to 100%.

The Indian Insurance Companies (Foreign Investment) Rules, 2015 have also been amended introducing the following key changes with effect from 30 December 2025:

(i) Residency requirement: The requirement for an insurance company with FDI to have majority of its directors and key management persons as resident Indian citizens has been removed. However, at least one individual among the chairperson, managing director or chief executive officer of such an Indian insurer is required to be a resident Indian citizen.

(ii) Board composition: The requirement for an insurance company with more than 49% FDI to either have 50% of its board of directors comprise of independent directors or have an independent director as chairperson with at least 1/3^rd of its board comprising of independent directors has been removed.

(iii) Dividend and repatriation: The requirement for an insurance company with more than 49% FDI to retain 50% of its net profits in general reserves if its solvency margin is less than 180% has been deleted.

(iv) Relaxation for insurance intermediaries: The requirements for insurance intermediaries with majority foreign shareholding to (a) procure prior IRDAI approval for repatriation of dividends; and (b) restrict payments to the foreign group, promoter, subsidiary, interconnected or associate entities beyond what is necessary or permitted by the IRDAI have been deleted. Similar to an insurance company, the requirement for such an insurance intermediary to have at least one individual among its chairperson, managing director, principal officer, or chief executive officer to be a resident Indian citizen has been retained. Before 100% FDI permission is implemented in Indian insurance companies, the Central Government must enact necessary amendments to the foreign exchange control rules. Once operationalised, this would make the Indian market attractive to foreign investors seeking greater control and strategic flexibility, though it remains to be seen if new players are likely to set up business with 100% shareholding. Having a strong distribution network is often viewed as critical for success in the Indian market, and foreign promoters may still look to enter into joint venture arrangements with local partners to secure this.

2) Streamlining Mergers and Amalgamations with Non-Insurers 

The Amendment Act introduces an explicit legislative framework for the merger or amalgamation of an insurance company with a non-insurance entity, subject to the prior approval of the Insurance Regulatory and Development Authority of India (“IRDAI”).

Historically, IRDAI has rejected mergers between an insurance company and a non-insurer, most notably the proposed multi-stage merger where Max Life Insurance would merge with its non-insurance parent, Max Financial Services, and then the combined entity would merge with HDFC Life Insurance, citing that there is no enabling provision for the same under the Insurance Act. As per news reports, a panel set up by IRDAI in February 2025 also considered such mergers and advised against them on the basis that such mergers could pose a risk to policyholders. However, subsequently, in March 2025, the National Company Law Appellate Tribunal (“NCLAT”) in IRDAI v. Shriram General Insurance Company Limited, held that in the absence of a specific statutory prohibition, such mergers could be undertaken under the Companies Act, 2013 without prior approval from the IRDAI. This amendment accordingly takes the position confirmed by the NCLAT though it is interesting to note that the amendment allows IRDAI to specify conditions for such a merger. While this reform is expected to provide much-needed legal certainty for corporate restructuring involving insurers and non-insurers (especially, holding company/SPV structures), the requirements under the rules and any conditions that IRDAI may propose as part of the approval process will be very important to analyse the feasibility of this structure.

3) Increased Threshold for Share Transfer Approvals

The threshold for prior IRDAI approval for share transfers in insurers has been increased from 1% to 5% of paid-up equity capital.

This change will reduce regulatory hurdles for smaller transactions facilitating share transfers for small shareholders, including private equity and other financial investors. Consequential changes will need to be made to IRDAI regulations to implement this change and it remains to be seen whether lock in requirements (on investors) will be retained for transfer of shares up to 5%.

4) Restrictions on Common Directorships 

The Amendment Act expands the prohibition on common directors and officers. Previously applicable only to life insurers, the restriction now prevents a director or officer of any insurer from simultaneously serving as a director or officer of another insurer in the same line of business, a banking company or an investment company.

While the intent appears to be strengthening governance and avoiding conflicts of interest, this may have significant implications for existing board structures of insurers promoted by banking companies and investment companies, who may have to remove their nominees from the board of the insurer if such nominees also hold a board seat with the bank or investment company.

5) Paving way for composite insurance license

Under current laws, an insurance company can only undertake the specific insurance business it is licensed to perform i.e., life, general, health or reinsurance. Whether the Amendment Act would allow ‘composite licensing’ (i.e., an insurance company being permitted to undertake more than one class of insurance business) was one of the most anticipated changes. While the Amendment Act does not expressly provide for composite licensing, it has provided a new enabling framework which empowers the Central Government, in consultation with the IRDAI, to notify a “class of insurance business”. This provision is generally being interpreted as enabling the IRDAI to notify composite licensing. There is no specific guidance from the IRDAI at this stage on what this class of insurance business could entail.

The introduction of composite licensing is expected to drive operational efficiencies, especially for entities already conducting multiples lines of business through different entities, and foster the creation of innovative, bundled products that cater to diverse customer needs under one roof. The practical implementation would require a multi-pronged approach to establish a robust framework to manage the aggregated risks of different business lines, harmonising investment strategies and merging complex IT and actuarial infrastructures. This is not an easy task, and hence it remains to be seen whether the IRDAI would, at this stage, permit the same insurance company to undertake more than one main line of insurance business (e.g., life and general insurance business by the same insurance company).

6) Relaxations in Investment Norms

The Amendment Act has lifted the restriction on insurers investing in the shares and debentures of private companies.  This is expected to potentially encourage capital allocation towards synergistic enterprises and allow insurers to diversify their investment portfolio thus ultimately benefitting policyholders. The detailed supervision of investments by insurers is expected to be prescribed through IRDAI regulations.

7) Perpetual Registration for Intermediaries

The requirement for insurance intermediaries to renew their registration every three years has been removed. Under the new regime, a registration will remain in force until it is suspended or cancelled by the IRDAI, subject to the payment of an annual fee.  This alignment with the insurer registration framework will ensure business stability and continuity for intermediaries and facilitate the development of long-term relationships with both insurers and customers.

8) Recognition of Managing General Agents (MGAs)

Managing General Agents (MGAs) have been formally included within the definition of “insurance intermediaries”.  MGAs are specialised intermediaries who possess the authority to underwrite binding insurance directly on behalf of the insurer. This is expected to enable specialised global players to enter the Indian market and the participation of intermediaries to expand to functions like underwriting and product design.

9) Net Owned Funds for Foreign Reinsurer Branches (“FRBs”) Reduced

To encourage greater participation of foreign reinsurers in the Indian market, the minimum net owned fund requirement for FRBs has been reduced from INR 5,000 crore to INR 1,000 crore. This reform is consistent with the Government’s policy to encourage onshoring foreign reinsurers and follows the imposition of onerous conditions on cross border reinsurers by requiring them to furnish collateral while accepting reinsurance risk from India.

10) Enhanced Data Protection and Sharing

The Amendment Act introduces a statutory basis for the protection and sharing of policyholder information. It mandates that such information can only be shared with third parties under limited circumstances: with the policyholder’s express consent, where disclosure is required by law, or where there is a public duty to disclose. This is aligned with the consent-based framework which is to be implemented under the Digital Personal Data Protection Act, 2023 by May 2027.

11) Increased Penalties and Disgorgement Powers

The regulatory enforcement mechanism has been strengthened. The maximum penalty that the IRDAI can impose for contraventions has been increased from INR 1 crore to INR 10 crores. Furthermore, the IRDAI has been granted disgorgement powers (similar to those afforded to SEBI), enabling it to order entities to surrender any wrongful gains made or losses averted through violations of the regulatory framework. The Amendment Act also introduces a specific penalty of up to INR 1 crore for insurers that engage unlicensed intermediaries and personal liability with fines up to INR 10 lakh for directors and officers of the insurer who are knowingly party to such engagement. The increased penalties, especially, personal liability for directors, are material amendments giving significant powers to the IRDAI, and the intent of including them could be to reduce mis-selling and other practices, which are prejudicial to the interest of policyholders. The industry will be very keenly watching the extent and frequency with which the IRDAI invokes these powers.

12) Consultative process for rulemaking

To enhance transparency and stakeholder participation, the Amendment Act mandates a more consultative process for IRDAI’s rulemaking. It requires the regulator to publish draft regulations for public comment before issuance, except in cases of urgency.

13) Deviations from the 2024 Proposed Amendments

While the Amendment Act largely reflects the draft amendments proposed by the Ministry of Finance in 2024 (“2024 Draft Amendments”) (see our insights on the 2024 Draft Amendments here), the following key proposals have not been included in the final legislation:

(i) Omission of Open Architecture: A particularly significant omission from the Amendment Act is the proposed open architecture model for insurance agents. The 2024 Draft Amendments had included a provision to dismantle the existing tied-agency model, under which an individual agent is restricted to working with a single insurer in each class of business (i.e., one life, one general, and one health insurer). The decision to not proceed with this reform is seen by some industry participants, especially insurance companies with established agency relationships, as a move to protect the traditional, agency-driven distribution model that underpins incumbent players. Though this is contrary to the IRDAI’s general intention to promote open architecture.

(ii) Reduction in Minimum Capital: The proposal to reduce the minimum capital required for insurers, particularly those serving underserved or niche segments, from INR 100 crore to INR 50 crore was not retained.

(iii) Expansion of Business Scope: The 2024 Draft Amendments had proposed allowing insurers to undertake additional activities, such as providing guarantees and indemnities. This specific provision to expand the scope of business to non-insurance financial products was omitted from the final legislation. However, the definition of insurance business includes “any other form of contract as may be notified by the Central Government” enabling the Central Government to notify ancillary services.

The Amendment Act marks a pivotal moment for Indian insurance, especially, the permission for 100% FDI which reflects a complete shift from the protectionist philosophy that was the theme of Indian insurance for several decades. While it may not immediately result in new foreign players establishing business in India, it will go a long way in addressing capital needs of existing players (allowing foreign partner to provide capital when an Indian partner cannot or is unwilling to), and give greater flexibility to foreign partners in structuring joint venture arrangements. Our expectation is that foreign players may still prefer to partner with domestic players for access to their distribution capabilities and familiarity with India, at least in the initial few years of operation.

The Amendment Act addresses long-standing industry demands, providing clarity for insurer-non-insurer mergers and streamlining operations through perpetual intermediary registrations and MGA recognition. While some anticipated reforms, like reduced minimum capital and open architecture for agents were not included, the legislation is largely progressive. The immediate focus now shifts to the IRDAI and Central Government. They must develop the necessary regulations to operationalise these transformative changes and hopefully also provide clarity on certain provisions such as in relation to common directorships.

Authors: Deepa Christopher & Rebha Dakshini – Partners, Chhavi Singhal – Senior Associate

Disclaimer: This publication only highlights key issues and is not intended to be comprehensive. The contents of this publication do not constitute any opinion or determination on, or certification in respect of, the application of Indian law by Talwar Thakore & Associates (“TT&A”). No part of this publication should be considered an advertisement or solicitation of TT&A’s professional services.