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Economy › Money, banking and finance

Financial inclusion, insurance and pensions

Bringing people into the formal financial system: accounts, insurance, provident funds and pensions.

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See all: Prelims · Mains

StandardPrelims and Mains30 Jul 2026

Insurance in India is governed by the Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and the Insurance Regulatory and Development Authority Act, 1999, which created the regulator. The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025, passed by both Houses in December 2025, amends all three.
Its headline change raises the limit on foreign investment in an Indian insurer from 74 to 100 per cent of paid up capital. It defines "class of insurance business" to include life, general, health and reinsurance, which opens the way to a composite licence under which one insurer may sell more than one class.
It cuts the net owned fund a foreign reinsurer's branch must hold from ₹5,000 crore to ₹1,000 crore, raises the share transfer threshold needing the regulator's approval from 1 to 5 per cent, lets the regulator supersede an insurer's board and appoint an administrator, raises the maximum penalty from ₹1 crore to ₹10 crore, and creates a Policyholders' Education and Protection Fund into which penalties flow.

Area	Before	After the 2025 amendment
Foreign investment in an insurer	74 per cent	100 per cent
Net owned fund of a foreign reinsurer's branch	₹5,000 crore	₹1,000 crore
Share transfers needing the regulator's approval	Above 1 per cent	Above 5 per cent
Classes of business	One class per licence	"Class of insurance business" defined; a composite licence possible once classes are notified
Maximum penalty	₹1 crore	₹10 crore, with disgorgement of wrongful gains
Policyholder protection		Board supersession and an administrator where policyholders are harmed; a Policyholders' Education and Protection Fund fed by penalties

On 30 July 2026 the Insurance Regulatory and Development Authority of India notified seven regulations to give the Act effect: on the registration, capital, share transfers and amalgamation of insurers; on their actuarial, finance and investment functions, with reinsurers to appoint separate actuaries for life and general business; on intermediaries, surveyors and third party administrators; on the Policyholders' Education and Protection Fund, which will pay for education, grievance support, the recovery of unclaimed amounts and technology; and on the adjudication of penalties.
An amalgamation may not use policyholders' funds to meet the liabilities it creates.
The regulator's "Bima Trinity", the Bima Sugam marketplace, the Bima Vistaar bundled cover and the Bima Vahak women's distribution network, is the delivery side of the same programme, aimed at "insurance for all by 2047".

Insurance penetration in India is about 4 per cent of gross domestic product, below the world average, and the industry needs capital that domestic promoters have not supplied; 100 per cent foreign ownership is the bet that foreign capital will.
A composite licence lets one company sell life and health cover together, as banks sell many products, and lowers the cost of distribution; it also concentrates risk in one balance sheet.
The Fund and the higher penalties shift the regulator's weight from the insurer to the policyholder, which the mis selling record of the last decade justifies.

Prelims: foreign investment in insurance 100 per cent, from 74 (2021), 49 (2015) and 26 (2000); the regulator was created by the Act of 1999; the net owned fund for foreign reinsurers ₹1,000 crore; the Bima Trinity's three parts; penalties up to ₹10 crore.
Mains: whether foreign capital and composite licences will deepen penetration or only consolidate the market.

Show the questions

Prelims 2026: Which of the following statements about insurance in aviation sector is/are correct? 1. 'Aviation Hull Insurance' covers the physical aircraft, including the body, engine, and on-board equipment. 2. Under the Montreal Convention, adopted in 1999 by over 130 countries including India, airlines are strictly liable to pay compensation to the family/nominee of every deceased passenger without requiring the family to prove fault.
Prelims 2020: In India, under cyber insurance for individuals, which of the following benefits are generally covered, in addition to payment for the loss of funds and other benefits ? 1. Cost of restoration of the computer system in case of malware disrupting access to one's computer 2. Cost of a new computer if some miscreant wilfully damages it, if proved so 3. Cost of hiring a specialized consultant to minimize the loss in case of cyber extortion 4. Cost of defence in the Court of Law if any third party files a suit

Sources

PRS Legislative Research, July 2026, “Monthly Policy Review, July 2026”
PRS Legislative Research, “Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025”
Khaitan and Co, 18 December 2025, “Insurance 2.0: Parliament passes Insurance Amendment Bill, 2025”

Settled facts (dates of Acts, constitutional provisions, standing definitions) are from standard references.