INVESTMENT INSIGHT SERIES  •  TWO-PART ARTICLE  •  PART I OF II

About this series 

This series is intended to sensitise foreign investors in investment opportunities in India, key sectors for investment, enablers for investment, and legal and regulatory challenges to watch out for. We are starting the series with a two part article on Recent Liberalisation of FDI limits in Insurance sector. Part I examines FDI regulatory framework for investment in insurance sector, what changed, why it changed, and what it means for foreign investors. Part II will examine how India’s bilateral and regional trade and investment agreements, including the India–UK CETA, the India–UAE CEPA, the India–Singapore CECA, and the India–EU FTA,  can be leveraged to facilitate insurance-sector investments in India.

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A Historic Opening 

India’s Parliament passed the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025 (Amendment Act) in December 2025, amending the three legislations that form the basis of India’s insurance regulatory landscape: the Insurance Act, 1938; the Life Insurance Corporation Act, 1956; and the Insurance Regulatory and Development Authority Act, 1999. The amendment increased the cap on foreign direct investment (FDI) in Indian insurance companies from 74% to 100%. The amendment in the Insurance Act, 1938 has been implemented through DPIIT Press Note No. 1 (2026 Series), also notified by the Ministry of Finance through an amendment to the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, which took effect on 9 February 2026.

The liberalization journey that started in 1999 with 26% FDI cap, to 49% in 2015, to 74% in 2021, has now been completed with full foreign ownership permitted in the insurance sector. The original skepticism of foreign capital in a core sector like insurance gave way to increased foreign participation, as the Government realized that India’s vast insurance market remains under-served, for want of intensive capital.

Why Now? The Case for Liberalisation

A Market of Unmatched Scale and Headroom

There is widespread acceptance that India lags in insurance penetration, currently standing  at 3.7% of GDP, against a global average of 6.8%. While US remains a benchmark at 12%, India’s competitor in the Global South, China’s stands at 4%. Per capita insurance spend in India remains low at approximately USD 97, and vast sections of the rural economy remain entirely outside formal insurance coverage. The government’s stated objective — “Insurance for All by 2047” requires massive step-up in capital allocation, besides improvements in distribution network, and product innovation. This gap requires international collaboration, and in a way it is an opportunity and an invitation to the foreign players to show more interest in the Indian insurance market.

Removing the Joint Venture Constraint

The earlier regulatory framework required foreign insurers form joint ventures with Indian partners holding least 26% equity in the Indian insurance company. This presented a problem, as when a foreign insurer sought to expand or build solvency buffers, it needed its Indian partner to contribute proportionally. In many cases, the Indian partner  either lacked the funds or the appetite to do so, forcing the foreign partners to either shelve the expansion plans or device innovative mechanisms to fund the company, putting them often at a disadvantage. The revised FDI limit of 100% removes this constraint entirely. A foreign insurer will now be able to deploy capital as it needs, and plan its strategies without depending on Indian partner’s balance sheet.

A Strengthened Regulatory Architecture

The Amendment Act did not just open the sector — it built the institutional infrastructure to manage the opening responsibly. IRDAI, the principal regulatory, received expanded enforcement powers including disgorgement authority, search and seizure rights, and a structured penalty framework with maximum penalties raised tenfold to ₹10 crore (equivalent to USD 10 million).

The Architecture of the Reform

Foreign investors may now own up to 100% of the paid-up equity capital of an eligible Indian insurance company — including aggregate FDI and foreign portfolio investment — through the automatic route, without prior government approval. However, IRDAI will retain the right to approve any shareholding change above 5% remain.

The reform extends equally to insurance intermediaries: brokers, reinsurance brokers, corporate agents, third-party administrators, surveyors, loss assessors, managing general agents, and insurance repositories are all eligible for 100% FDI under the automatic route. FDI in the state owned Life Insurance Corporation of India (LIC) remains separately capped at 20% FDI.

Three key conditions apply. First, the enhanced FDI limit is available to companies that invest the entire premium collected within India,  a condition consistent with existing restrictions under Foreign Exchange Management Act (FEMA) on the overseas deployment of policyholder funds. Second, at least one of the Chairperson, Managing Director, or CEO must be a resident Indian citizen, ensuring domestic leadership without constraining foreign management strategy. Third, any increase in foreign shareholding must comply with RBI’s fair market value pricing guidelines under FEMA.

On the reinsurance side, the Amendment Act reduced the Net Owned Fund requirement for foreign reinsurance branches from ₹5,000 crore (INR 50 billion, equal to approximately USD 600 million) to ₹1,000 crore (INR 10 billion, equal to approximately USD 120 million). This move is likely to open India’s reinsurance market to a far wider range of international participants, and is consistent with the India’s ambition to develop GIFT City IFSC as a global reinsurance hub.

The Investor Opportunity

Swiss Re projects India’s insurance premium to grow at the rate of 6.9% over 2026 -2030 period, a rate higher than China, the United States, and Western Europe. Life insurance, is expected to grow annually at the rate if 6.8% over the next five years, while  general insurance is projected to grow at 8.7% in FY26 alone. India’s insurance market has witnessed a CAGR of 17% over the past two decades. Despite constraints  on FDI, India’s insurance sector attracted over ₹60,000 crore in cumulative FDI through 2024,  100% FDI investment route is should unlock the next phase of that capital deployment.

Foreign insurers may now establish Indian insurance companies as wholly owned subsidiaries. Existing joint venture partners may buy out their Indian counterparts: Zurich Insurance’s acquisition of a 70% controlling stake in Kotak Mahindra General Insurance for approximately ₹4,051 crore is a template for this approach. The Amendment Act also permits, for the first time, the merger of an insurer’s insurance business with the non-insurance business of a company subject to IRDAI approval, opening the door to financial conglomerate structures and bancassurance consolidations.

Conclusion: The Invitation Is Clear

India has, for the first time in its post-independence history, placed the entirety of its private insurance market within reach of foreign capital, under the automatic route, without government approval. This also comes at a time when the insurance market shows the highest growth potential amongst the leading economies in the world. It is an invitation to the world to come and invest in India. For those players who were still peeking into the Indian insurance market, the door is fully open.