Insurance Sector in India: IRDAI, the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act 2025, 100% FDI, Penetration, Government Schemes and Insurance for All by 2047 (UPSC Notes + PYQs)

Why insurance matters

A farmer in Vidarbha loses his cotton crop to unseasonal rain. A street vendor in Patna needs surgery. A family in Kochi loses its earning member in an accident. In each case, without insurance, one shock can push a household into debt for years. Studies of health spending show that out-of-pocket medical costs push millions of Indians below the poverty line every year. Insurance spreads such risks across many people, so that no one carries the whole burden alone.

Insurance is also a source of long-term savings for the economy. Life insurers and pension funds invest in government bonds, roads, power and housing, because their liabilities stretch over decades. A deeper insurance market therefore helps both social protection and infrastructure finance.

A short history

The 2025 amendment

The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025 was passed by Parliament on 17 December 2025, received assent on 20 December 2025, and most of its provisions came into force on 5 February 2026. It amends three laws at once: the Insurance Act, 1938, the LIC Act, 1956 and the IRDA Act, 1999. Its main features:

• 100% FDI in Indian insurance companies, up from 74%. Rules notified by the Finance Ministry require that at least one of the chairperson, managing director or CEO be a resident Indian citizen.
• Foreign reinsurers: the net owned fund requirement for branches of foreign reinsurers is cut from ₹5,000 crore to ₹1,000 crore, to deepen reinsurance capacity in India.
• Share transfers: the threshold above which insurers need prior regulatory approval for transfer of shares is raised from 1% to 5%.
• Intermediaries: one-time licensing for intermediaries, and suspension of a licence as an option instead of straight away cancelling it.
• LIC: autonomy to open zonal offices and to align its foreign offices with local laws.

How deep is Indian insurance?

India is one of the fastest growing insurance markets, and LIC remains the largest life insurer with a majority share of new premium in group business. But the protection gap, the difference between the cover people need and what they have, is huge, especially for health and natural disasters. Most health cover comes from government schemes, while the “missing middle”, people too rich for government schemes but too poor to buy private policies, remains largely unprotected.

Government schemes and IRDAI reforms

• PM Jeevan Jyoti Bima Yojana: life cover of ₹2 lakh for a yearly premium of ₹436.
• PM Suraksha Bima Yojana: accident cover of ₹2 lakh for ₹20 a year.
• PM Fasal Bima Yojana (2016): crop insurance with low farmer premiums of 2% for kharif, 1.5% for rabi and 5% for commercial and horticultural crops.
• Ayushman Bharat PM-JAY: ₹5 lakh a year per family for hospital care, extended to all citizens above 70 in 2024.
• Bima Trinity of IRDAI: Bima Sugam, an online marketplace for buying policies and settling claims; Bima Vistaar, a simple bundled policy for rural people; and Bima Vahak, women-led field force at the gram panchayat level.
• IRDAI’s goal is “Insurance for All by 2047”.

Why 100% FDI?

• Capital: insurance needs large, patient capital; Indian promoters often cannot supply enough to grow fast.
• Competition and products: global firms bring underwriting skills, technology and new products such as cyber and climate insurance.
• Penetration: more players can reach smaller towns and new segments.
• Long-term funds: more insurance assets mean more money for infrastructure.

Concerns

• Profits abroad: critics worry that fully foreign-owned firms will focus on rich urban clients and send profits home.
• Mis-selling: complex products sold by agents for high commissions harm trust; claim rejection and delays are common complaints.
• Health claims: rising hospital costs and disputes between insurers and hospitals hurt policyholders.
• Crop insurance: delayed payouts, disputes over yield data and some States leaving PMFBY show design gaps.
• Public sector insurers: some state-owned general insurers have weak finances.
• Climate risk: floods, cyclones and heatwaves are raising losses faster than premiums.

Way forward

Use the new FDI room to raise capital while keeping strong IRDAI oversight on fair pricing and claims. Push simple, standard products and digital sales through Bima Sugam. Build parametric insurance, which pays automatically when rainfall or temperature crosses a trigger, for farmers and informal workers. Create a national disaster risk pool with States. Fix health claim disputes through standard hospital rates and fast grievance redress. Improve financial literacy, so that people know what they buy. A deeper insurance market is a quiet but powerful tool of social security.

PYQ trend

Prelims has asked about crop insurance, cyber insurance, aviation insurance and who can trade in bonds. Mains GS-III asks about financial inclusion and social security.

Insurance Sector in India: UPSC angle

Insurance Sector in India UPSC PYQs (Prelims)

Questions UPSC has actually asked, from the official papers. Pick an option to check yourself.

Mains PYQs on this topic

Questions from the official UPSC Mains papers (2023-2026 in the Battle IAS Mains bank), newest first. Each links to a model answer.

1. UPSC Mains 2026 · GS Paper III · Q2 · 10 marks

   Examine the view that financial inclusion is an integral part of social and economic inclusion in a country like India. Also throw light on the usefulness of the R.B.I.'s Financial Inclusion Index.

   Model answer and approach

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