Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025

 Why in News ? The Rajya Sabha passed the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025 on Wednesday via a voice vote. This follows the Lok Sabha’s clearance of the bill just a day prior, effectively opening the Indian insurance sector to 100% Foreign Direct Investment (FDI).

Key Legislative Changes:

The passing of this Bill triggers major amendments across three primary legislative frameworks:

• The Insurance Act, 1938

• The Life Insurance Corporation Act, 1956

• The Insurance Regulatory and Development Authority Act, 1999

Objectives and Economic Impact:

Union Finance Minister Nirmala Sitharaman highlighted several benefits intended to strengthen the national economy and insurance landscape:

• Increased Penetration: The move aims to bring insurance coverage to a larger portion of the population.

• Lower Premiums: Enhanced competition and capital flow are expected to reduce premium costs for citizens.

• Job Creation: The expansion of the sector is projected to create new employment opportunities.

• Operational Independence: Foreign companies can now operate in India even if they are unable to secure a local joint venture partner.

• Entry of Smaller Players: The requirement for net owned funds has been slashed from Rs 5,000 crore to Rs 1,000 crore, allowing smaller companies to enter the market.

Historical Context of FDI in Insurance:

The increase to 100% marks the final stage in a decade-long liberalization of the sector:

• 2015: FDI limit increased from 26% to 49%.

• 2021: FDI limit increased from 49% to 74%.

• 2025: FDI limit increased to 100%.

Opposition Concerns:

Despite its passage, the Bill faced significant pushback from opposition members:

• Parliamentary Review: The House rejected a demand to send the Bill to a parliamentary panel for further scrutiny.

• Linguistic Objections: Opposition members objected to the use of both Hindi and English words in the Bill’s official title.

• Rural Market Protections: TMC’s Saket Gokhale argued that private insurers may ignore low-premium, high-risk rural markets, potentially hampering government-provided protections.

• Predatory Pricing: Concerns were raised regarding private companies entering the market with predatory pricing, which could affect the market share and profits of LIC.

• Policy Inconsistency: Congress MP Shaktisinh Gohil noted that past BJP leaders and the party’s 2014 manifesto had previously opposed allowing FDI in the insurance sector.

 About the Insurance Act, 1938:

The “Parent” Law This is the original, comprehensive legislation created during British rule to regulate the insurance business in India.

• Purpose: It was designed to bring all types of insurance (Life and General) under a single regulatory system to prevent fraud and protect policyholders from “fly-by-night” operators.

• Key Features: * Mandated the compulsory registration of all insurance companies.

  • Set rules for how companies could invest their funds (ensuring they kept enough money to pay claims).

  • Established the position of the Controller of Insurance, the very first insurance regulator in India.

About the Life Insurance Corporation (LIC) Act, 1956:

The “Nationalization” Law In the 1950s, the Indian government decided that life insurance was too important for the private sector alone and should be used to fund national development.

• Purpose: This Act nationalized the life insurance industry by merging 245 Indian and foreign insurers into one single entity: the Life Insurance Corporation of India (LIC).

• Key Features:

• Gave LIC the exclusive right (monopoly) to carry out life insurance business in India.
• Provided a Sovereign Guarantee, meaning the Government of India would be responsible for paying policyholders if LIC ever failed.
• Mandated that LIC invest heavily in government-approved projects like housing, water supply, and infrastructure.

About the IRDA Act, 1999:

The “Liberalization” Law By the late 90s, the government realized that a monopoly was slowing down growth and innovation. This Act reopened the door to the private sector.

• Purpose: It established the Insurance Regulatory and Development Authority (IRDA) as an independent, statutory body to oversee and develop the industry.

• Key Features:

• Ended the monopoly of LIC (Life) and GIC (General), allowing private companies to enter the market again.
• Introduced Foreign Direct Investment (FDI) to bring in global capital and expertise.
• Gave the IRDA the power to issue licenses, set code-of-conduct rules for agents, and protect policyholder interests through a Grievance Redressal system.