India Proposes Major Reforms to Insurance Laws to Boost Transparency, Investment, and Awareness

The proposed amendments to the country’s insurance laws seek to widen coverage, strengthen oversight and make the sector more transparent and investment-friendly, while keeping policyholder interests at the core, finance minister Nirmala Sitharaman said on Tuesday. The Amendment of Insurance Laws) Bill, which was approved by Lok Sabha on Tuesday, also aims to tighten regulatory oversight to ensure the orderly conduct of insurance business. Transparency is central to this effort, with the introduction of standard operating procedures for regulation-making and mandatory public consultation on all regulations by the Insurance Regulatory and Development Authority (IRDA) , Sitharaman said. This addresses concerns about arbitrary or rushed rule-making, while retaining limited fast-track powers only for urgent or risk-mitigating situations, she said. To promote ease of doing business, the Bill introduces one-time registration for insurance intermediaries, reducing regulatory delays and compliance burdens and ensuring uninterrupted service to customers. In cases of violations, intermediary licences will be suspended rather than immediately cancelled, providing time for corrective action while safeguarding policyholders. The proposed removal of upper caps on foreign direct investment in insurance is expected to attract global capital, advanced technology, sophisticated risk models and innovative products, she said. Complementing this, the net own fund requirement for foreign reinsurance branches will be reduced from ₹5,000 crore to ₹1,000 crore, encouraging more reinsurers to operate in India and expanding domestic risk capacity, she said. Corporate simplification is addressed through provisions allowing mergers between insurance and non-insurance companies, while the threshold for prior regulatory approval for share transfers has been raised from 1% to 5%, cutting compliance costs, she said. The Bill also grants greater autonomy to LIC, enabling it to open zonal offices and align overseas operations with local laws through board-level decisions, making the insurer more agile and professionally managed. A key pillar of the reform is insurance awareness. The Policyholders’ Education and Protection Fund, created from penalties levied by the IRDA, will be dedicated to educating citizens about insurance products and their legitimate benefits, helping households better manage risks and make informed choices.