Parliament passed the Sabka Bima Sabki Raksha Act, 2025 on 17 December 2025, amending the Insurance Act, 1938 and the IRDAI Act, 1999 to permit 100 per cent foreign direct investment in Indian insurance companies. The legislation also mandates digital KYC norms, requires insurers to maintain electronic policy records, and significantly strengthens the enforcement powers available to the Insurance Regulatory and Development Authority of India with enhanced penalty provisions.
Background
India's insurance sector has operated under a progressively liberalised FDI regime — the cap was raised from 26 per cent to 49 per cent in 2015, and further to 74 per cent in 2021. The complete removal of the FDI ceiling represents the final step in a decade-long policy trajectory aimed at deepening foreign capital participation in the sector. India's insurance penetration remains below the global average, and policymakers have viewed foreign investment as a catalyst for expanding coverage, improving product innovation, and strengthening distribution networks across underserved markets.
The bill was introduced as part of the government's broader financial sector reform agenda during the Winter Session, alongside the Securities Markets Code and other significant legislation. It received expedited parliamentary consideration given prior stakeholder consultations and regulatory groundwork by IRDAI.
Key Provisions
The Sabka Bima Sabki Raksha Act, 2025 introduces the following changes:
100% FDI permitted: The foreign investment cap in Indian insurance companies is eliminated entirely. Foreign entities may now hold 100 per cent equity in Indian insurers, subject to compliance with applicable IRDAI regulations and FEMA norms.
Digital KYC mandate: Insurers are required to implement digital know-your-customer processes for policyholder onboarding, aligning with the broader digital identity ecosystem. Physical KYC will remain available but digital must be offered as the primary channel.
Electronic policy records: All insurance policies must be maintained in electronic form, accessible to policyholders through a designated digital platform. This replaces the current system where physical policy documents remain the default.
Enhanced IRDAI enforcement: The Act strengthens IRDAI's penalty framework with significantly increased monetary penalties for regulatory violations including mis-selling, delayed claims processing, and non-compliance with policyholder protection norms.
Policyholder protection: New provisions mandate clearer disclosure requirements for policy terms, exclusions, and claim settlement procedures, aimed at reducing disputes and improving consumer trust.
Implications for Practitioners
The removal of the FDI cap will trigger a wave of corporate transactional activity in the insurance sector. M&A practitioners should anticipate acquisition interest from global insurance groups seeking to increase their stakes from 74 per cent to full ownership, or to enter the Indian market through new wholly-owned subsidiaries. Transaction structuring will need to account for IRDAI approval requirements and potential conditions on management control.
Insurance regulatory practitioners must prepare for the new digital compliance framework. The KYC and electronic records mandates will require insurers to invest in technology infrastructure and update their data governance policies. IRDAI is expected to issue detailed implementation guidelines, and practitioners should engage with the consultation process.
The enhanced penalty framework warrants an immediate review of existing compliance processes to identify potential exposure under the stricter regime.