India’s New Insurance FDI Framework Takes Effect from February 5, 2026

India’s liberalized foreign direct investment (FDI) regime for the insurance sector is now operational. Effective February 5, 2026, most provisions of the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025, have come into force, opening the door for substantially higher foreign participation in Indian insurance companies.

This marks a major policy shift aimed at attracting global capital, deepening market competition, and improving access to insurance for individuals and businesses across the country.

The Ministry of Finance notified that all provisions of the act will be operational from this date except Section 25, which relates to restrictions on common officers and the requirement for full-time officers. The commencement date for this provision will be announced separately.

Scope of legislative changes

The new law amends three foundational statutes governing India’s insurance framework:

1. Insurance Act, 1938
2. Life Insurance Corporation Act, 1956
3. Insurance Regulatory and Development Authority Act, 1999

Together, these amendments are designed to modernize regulation, improve capital availability, and strengthen governance across the insurance ecosystem.

Foreign investment liberalization

Under the amended legal framework, foreign investors, including foreign direct investors and foreign portfolio investors (FPIs), can collectively own up to 100 percent of the equity in an Indian insurance company, subject to conditions prescribed by the central government.

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This change is enabled through a new provision, Section 3AA, in the Insurance Act, 1938, inserted by the Sabka Bima Sabki Raksha Act. While full foreign participation is now legally possible, the detailed rules and conditions governing such investment will be set by the central government.

Despite full foreign ownership being permitted, certain governance safeguards remain in place. Notably, the chairperson, managing director (MD), or chief executive officer (CEO) of an insurance company must continue to be an Indian citizen.

The legislation also enables structural flexibility by allowing the merger of non-insurance entities with insurance companies, subject to regulatory approval.

This move builds on India’s gradual liberalization of insurance FDI norms, which have expanded from 26 percent to 49 percent in 2015, 74 percent in 2021, and now 100 percent.

CLICK HERE TO KNOW MORE: India’s Foreign Investment Rules for Insurance Companies: What Global Insurers Need to Know

Expected impact on capital and market development

Industry experts expect the reform to attract long-term foreign capital and global expertise, particularly as India’s insurance penetration remains relatively low, around 3.7 percent of GDP, compared to a global average of approximately 7 percent. Full foreign ownership is expected to support innovation, advanced risk management practices, and deeper market participation.

Ease of doing business reforms under Amendment of Insurance Laws Act, 2025

The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025, also introduces measures aimed at simplifying regulatory processes:

• One-time licensing for insurance intermediaries
• Provision for license suspension instead of outright cancellation, offering regulatory flexibility
• Higher thresholds for seeking prior regulatory approval for share capital transfers, increased from 1 percent to 5 percent

For reinsurers, the net owned fund requirement for foreign reinsurance branches has been reduced drastically, from INR 50 billion (US$553.74 million) to INR 10 billion (US$110.74 million), lowering entry barriers.

Additionally, India’s state-owned insurance group, the Life Insurance Corporation of India (LIC), has been granted greater operational autonomy, including the ability to open zonal offices domestically and align overseas operations with host-country regulations.

Understanding India’s new insurance FDI framework: Act vs. Rules

India’s insurance sector reforms rest on two connected but distinct legal instruments. While they work together, each serves a different purpose.

The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025, amends India’s core insurance legislation, particularly the Insurance Act, 1938, and sets the overall policy direction for the sector.

• Legally allows up to 100 percent foreign ownership in Indian insurance companies
• Inserts Section 3AA into the Insurance Act to enable full foreign investment
• Empowers the central government to prescribe conditions and safeguards

This act is the legal foundation for higher foreign investment. In simple terms, it decides how open India’s insurance sector can be.

The Indian Insurance Companies (Foreign Investment) Amendment Rules, 2025, are central government-issued rules made under powers already provided by the Insurance Act. They are secondary legislation, meant to operationalize the law.

• Updates the practical framework for foreign investment
• Aligns insurance FDI rules with FEMA (Non-debt Instruments) Rules, 2019
• Removes the old 74 percent cap from the rules and links FDI limits directly to the Insurance Act
• Prescribes governance safeguards, such as requiring a resident Indian in key leadership roles
• Simplifies compliance and reporting requirements

The rules explain how companies must comply, from calculating FDI to structuring management and meeting regulatory obligations.

Strategic implications for businesses and investors

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The new framework offers several key advantages:

• Greater ownership flexibility: Investors can pursue full ownership structures, subject to conditions
• Clearer regulatory alignment: FDI rules now conform with current FEMA norms
• Reduced compliance friction: Simplified enforcement and reporting provisions
• Improved market clarity: Better predictability for investment planning and execution

For existing joint ventures and new entrants alike, the reforms provide a clearer path to structuring investments and scaling operations in India’s growing insurance market.

CLICK HERE: Investing in India’s Insurance Sector: Frequently Asked Questions

Outlook

India’s revised FDI regime for insurance is a significant step toward integrating the sector with global capital markets. By permitting up to 100 percent foreign ownership and modernizing the supporting regulatory architecture, the government aims to unlock capital, extend insurance coverage, and support long-term sectoral growth.

Businesses and investors should engage closely with forthcoming rules that will define the conditions and operational mechanisms for full foreign participation.

(US$1 = INR 90.2)

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