The Sabka Bima Sabki Raksha (Amendment Of Insurance Laws) Bill 2025: Next Phase For The Indian Insurance Sector

INTRODUCTION

Following the Union Cabinet's approval on 12 December 2025, the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill 2025 ("2025 Bill") has now been passed by both Houses of Parliament and is pending the President's assent and notification in the Official Gazette, following which it will come into force. Once enacted, the 2025 Bill will amend various provisions of the Insurance Act 1938 ("Insurance Act"), the Insurance Regulatory and Development Authority Act 1999 ("IRDA Act") and the Life Insurance Corporation Act 1956.

The Bill constitutes the third major legislative overhaul of India's insurance framework in the past twenty-five years, following the reforms undertaken in 2015 and 2021. It marks the culmination of a legislative process initiated through draft bills released by the Central Government in 2022 ("Erstwhile 2022 Bill") and 2024 ("Erstwhile 2024 Bill") for public consultation, following the increase in foreign investment limits in the insurance sector. Those earlier drafts proposed various structural reforms, including permitting insurers to operate across multiple classes of insurance business, enabling captive insurers, expanding insurers' ability to undertake non-insurance and financial services activities, and introducing more discretion-based capital frameworks, which were not carried forward. The 2025 Bill, as approved by the Union Cabinet and passed by the Parliament, appears to be targeting expansion and providing greater clarity on the existing framework.

We have considered the key amendments proposed under the 2025 Bill along with our preliminary analysis of their potential impact on the present Indian insurance framework.

A. Insurance Act

1) Introduction of Key Definitions:

1. "insurance contract" and "insurance business"¹: A foundational change under the 2025 Bill is the introduction of statutory definitions for "insurance contract" and "insurance business". The terms are proposed to be defined under §2 of the Insurance Act in the following terms:
   
   1. "Insurance contract", which means "the contract whereby the Insurer, on payment of premium, undertakes to assume risk and to pay to the insured person an agreed compensation for loss, damage, or liability arising from a contingent event on such terms and conditions and subject to such limitations as may be agreed". This definition broadly aligns with the concept of "insurance contract" set out under IRDAI's "Master Circular on Protection of Policyholders' Interests" 2024² and is likely to supersede the same.
   2. "Insurance business", which means the business of effecting insurance contracts and includes any other form of contract as may be notified by the Central Government in consultation with the IRDAI from time to time. This definition appears to pave the way for the Central Government to allow Insurance Companies to additionally offer certain other forms of contract, the scope and ambit of which will be determined in due course.
2. Class of insurance business³: Similar to the definition proposed under the Erstwhile 2024 Bill, this continues to be defined as the class of life, general, health insurance business, reinsurance business or such other class as may be notified by the Central Government.
3. Insurance Intermediary⁴: While the term has been defined under the IRDA Act since 2002, the 2025 Bill proposes introducing the definition in the Insurance Act, and in doing so, expressly recognises managing general agents ("MGAs") as a distinct category of insurance intermediary subject to regulations to be issued by the IRDAI. This statutory recognition provides a clearer legal basis for the introduction of the participation of MGAs in the Indian insurance ecosystem and also potentially in GIFT City going forward.

2) Amendments to Existing Definitions

1. "Health insurance business"⁵: The definition is expanded and restructured to expressly include both personal accident insurance and travel insurance within the scope of health insurance business. In particular, the inclusion of travel insurance now extends beyond medical and accident-related covers to also encompass "losses suffered, in the course of travel", which appears to provide express recognition to non-health or accident-related related risks such as loss of baggage, passport, or similar contingencies.
2. "Indian Insurance Company"⁶: The revised definition simplifies the existing version by removing foreign ownership thresholds, limiting it instead to an entity incorporated as a public company under the Companies Act 2013, with the sole purpose of carrying life, general, health insurance, or reinsurance business.
3. "Insurer"⁷: The definition is potentially widened in view of the definition of "insurance business" to mean any person who carries on insurance business, replacing the earlier entity-specific definition.

3) Prohibition on Transaction of Insurance Business (§2C)⁸: The amendments propose to clarify the regulatory boundary between insurance and non-insurance activities:

1. The key changes include: (i) expansion of permitted entities to include statutory bodies and multi-state co-operative societies; (ii) express prohibition on non-insurers using insurance-related terminology; and (iii) limited, regulated use of such terminology by insurance intermediaries.
2. It is also relevant to note that the previous two versions of the Bills proposed to expand the scope of activities that could be undertaken by Indian Insurance Companies beyond core insurance business, including permitting insurers to carry on specified ancillary and other businesses. These proposals have not been expressly retained in the 2025 Bill.

4) 100% FDI in Insurance Companies (§3AA)⁹: The proposed section builds upon the foreign investment framework introduced under the 2021 amendment (which increased the foreign investment cap from 49% to 74%) and permits aggregate foreign investment, including by foreign portfolio investors, in an Indian insurance company up to 100% of its paid-up equity capital, subject to prescribed conditions.

5) Minimum Capital and Net Owned Fund Requirements (§6)¹⁰: Consistent with the approach adopted in the Erstwhile 2024 Bill, the 2025 Bill retains the existing minimum paid-up equity capital requirements applicable to Indian Insurance Companies, while continuing to move away from the broader, discretion-based capital framework proposed under the Erstwhile 2022 Bill. In parallel, and as proposed under earlier iterations, the 2025 Bill continues to reduce the net owned funds requirement applicable to foreign reinsurance branches from ₹5,000 crore to ₹1,000 crore. The changes are likely to lower entry barriers for global reinsurers, which may in turn enhance domestic reinsurance capacity and improve premium retention within India.

6) Share transfer thresholds (§6A)¹¹: Consistent with the approach proposed under the Erstwhile 2024 Bill, the amendment increases the threshold for prior IRDAI approval of share transfers from 1% to 5% of paid-up equity capital. This change is likely to ease intra-group and market transactions while continuing to maintain regulatory oversight for material changes in shareholding.

7) Actuarial Requirements and Investigations (§13)¹²: The amendment proposes to primarily extend the requirement to cause an actuarial investigation and report on the financial condition of the business to all Insurers and prescribes that such investigation be conducted annually (subject to regulatory relaxation of up to two years).

8) Records, Data Processing and KYC Requirements:

1. Maintenance and Submission of Records (§14)¹³: The amendment proposes to expressly expand the scope of records to be maintained by Insurers by specifying additional information to be collected in terms of individuals and entities (such as date of birth, address and (where available) email address of the policyholder and Aadhaar number or Permanent Account Number). In addition, Insurers are also expressly permitted to maintain such records in electronic form and a statutory requirement for concurrent submission of policy and claims records to the IRDAI or entities authorised by it, in the manner specified by regulations, is proposed.
2. KYC, data processing and confidentiality (§14A – §14C)¹⁴: The cluster of provisions relating to KYC and policyholder information propose to:
   
   1. empower the IRDAI to regulate the collection, processing, and sharing of policyholder data;
   2. impose obligations relating to accuracy, security, and confidentiality; and
   3. prescribe a controlled mechanism for sharing information between insurers and regulated entities.

9) Investments (§27)¹⁵: The consolidation of investment provisions into a revised §27, coupled with the omission of §27A – §27D proposes to simplify the existing statutory framework for investments. Notably, similar to the Erstwhile 2024 Bill, the consolidated section does not retain the prohibition on Insurers investing in shares and debentures of a private limited company out of its controlled funds/assets.

10) Governance and Structural Controls:

1. Prohibition on common directors (§32A)¹⁶: The proposed amendment:
   
   1. restricts directors and officers of an Insurer from holding similar positions in another Insurer carrying on the same class of insurance business, or in a banking or investment company;
   2. empowers the IRDAI to grant regulatory exemptions for facilitating amalgamations or transfers of business; and
   3. exempts directors nominated by the Central Government from complying with the foregoing requirements.
   The proposed amendments are likely to have practical implications for existing group structures, particularly where banks or financial institutions are promoters of insurers.
2. Amalgamation and transfer of insurance business (§35)¹⁷: Building on the framework under the Erstwhile 2024 Bill, the amendment expands on the scope of regulatory oversight to expressly cover schemes involving the transfer or amalgamation of non- insurance business with insurance business. It further empowers the IRDAI to issue regulations prescribing the manner, procedure, and conditions applicable to such schemes of arrangement, amalgamation, or transfer of business. This amendment expands the range of restructuring transactions that may be undertaken by insurers, subject to ongoing regulatory oversight and compliance with conditions specified by the IRDAI.

11) Distribution, Commission and Intermediaries

1. Power of IRDAI to introduce commission limits (§40(2A))¹⁸: While the IRDAI already exercised oversight over commissions and remuneration payable to insurance agents and insurance intermediaries under the existing framework, the insertion of §40(2A) expressly anchors such powers in the Insurance Act. The provision enables the IRDAI, in the interest of policyholders, to prescribe limits on commission, remuneration or rewards, together with the manner of payment and disclosure requirements. In substance, the amendment codifies and strengthens the statutory basis for the existing controls over distribution and remuneration models.
2. Registration of intermediaries (§42D)¹⁹: Similar to the proposal under the previous version of the Bill, the amendment continues to remove the existing requirement on insurance intermediaries to renew their certificate of registration every three years. The removal of the statutory three-year registration cycle for intermediaries perhaps moves the regime closer to the "perpetual licence" model discussed in earlier bills.
3. Acting through unregistered intermediaries (§105BA)²⁰: The proposed section prescribes penalties ranging from ₹1 lakh to ₹10 lakh for acting as an insurance intermediary without registration, ₹10 lakh to ₹1 crore for appointing or transacting insurance business through an unregistered intermediary. Crucially, personal liability is also introduced for directors, officers, and partners who are knowingly involved. By imposing substantial penalties (including personal liability on directors, officers, and partners), the provision elevates intermediary compliance from an operational concern to a board-level risk. Accordingly, distribution arrangements will require careful reassessment.

12) Enforcement, Penalties and Regulatory Powers: The Bill enhances the enforcement framework through:

1. an express statutory clarification of the IRDAI's disgorgement powers under §34²¹;
2. higher maximum penalties under §102 (from ₹1 crore to ₹10 crore) while retaining existing per-day of default penalties; and
3. codified factors for determining penalties under §105E²² such as the nature and gravity of the default, recurrence, gains or losses caused, impact on policyholders, mitigation actions, proportionality, etc;

While earlier bill variants also contemplated an increase in monetary penalties, the primarily distinction in the 2025 Bill is in the enhancement of the overall penalty cap, with the per-day penalty framework remaining unchanged from the Erstwhile 2024 Bill.

13) Regulation-Making Powers and Institutional Architecture (§114A – §114C):

1. The amendments to §114A propose to introduce mandatory public consultation and transparency requirements for regulations issued by the IRDAI and expands the list of matters on which regulations may be made, including intermediary registration and fees, suspension or cancellation of registration, exemptions for certain Insurers, inspection fees, subsidiary instructions, and consultative committees.
2. The introduction of §114B and §114C enables issuance of subsidiary instructions and establishment of consultative committees, adding a more structured layer to stakeholder engagement.

B. IRDA Act

14) The key amendments proposed under the IRDA Act is the insertion of §14A to §14E, which together establish a statutory framework for the collection, sharing, use and protection of policyholder and policy-related information by the IRDAI.

1. Under §14A²³, the IRDAI is expressly empowered to collect information relating to policies and claims from insurers and other regulated entities, and to furnish such information to insurers or other regulated entities, for the purposes of efficient discharge of its statutory functions and for regulation and development of the insurance sector.
2. §14B²⁴ complements this power by authorising the IRDAI to call for statements and information from insurers and regulated entities in such form and within such timelines as may be prescribed, with an overriding effect over confidentiality obligations under any other law, contract or arrangement.
3. §14C²⁵ and §14D²⁶ together prescribe the procedural and confidentiality safeguards furnishing policyholder and policy related information to Insurer or other regulated entities, including verification of policyholder consent, non-disclosure of source entities, payment of fees, and restrictions on further disclosure.

15) Read together, these provisions create a centralised, regulator-led data-sharing architecture within the insurance ecosystem. These provisions also intersect with India's evolving data protection regime, including the Digital Personal Data Protection Act 2023, by embedding concepts of consent, purpose limitation, confidentiality and security directly into sectoral statues.

Conclusion

The 2025 Bill represents a transition from reform ambition to regulatory consolidation. While several proposals from earlier drafts (such as captive insurers, multi-class registrations, and insurer-led financial product distribution) have been set aside, the 2025 Bill strengthens regulatory clarity, supervisory tools, data governance, and enforcement mechanisms. For all regulated entities, the Bill leans towards a direction of greater operational flexibility accompanied by heightened expectations of governance, compliance, and accountability.

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