Will 100% FDI trigger India insurance consolidation?

It could also increase competition and expand reinsurance capacity in the domestic market.

India’s insurance sector is set for structural changes after the Insurance Laws (Amendment) Bill, 2025 was passed by the Rajya Sabha on 17 December, paving the way for higher foreign investment, easier entry for reinsurers and stronger regulatory oversight.

The bill raises the foreign direct investment (FDI) limit in insurance companies to 100% from 74%, amending the Insurance Act, 1938, the Life Insurance Corporation Act, 1956, and the IRDAI Act, 1999. 

According to CareEdge Ratings, the move will ease capital constraints for insurers as solvency requirements rise and could support consolidation in the sector.

Out of around 60 insurers and reinsurers operating in India, six smaller players are already close to the earlier foreign ownership ceiling of 70% to 74%. 

For these companies, the higher cap allows further capital infusion by existing foreign promoters without changing ownership structures.

Around 11 mid-sized insurers with foreign stakes of about 49% are also expected to benefit from a broader pool of capital.

The bill also lowers the net-owned fund requirement for foreign reinsurers to ₹1,000 crore from ~$555m (₹5,000 crore), reducing entry barriers for international and specialised reinsurance players. 

CareEdge said this could increase competition and expand reinsurance capacity in the domestic market, with the required capital remaining within India to support local insurers.

Regulatory flexibility has been extended to insurers operating in Special Economic Zones (SEZs) and International Financial Services Centres (IFSCs) within SEZs. 

This allows the central government to tailor insurance regulations for these zones, supporting cross-border insurance activity and the development of IFSCs as regional insurance hubs.

Another key change removes the mandatory minimum paid-up capital requirement of ~$11.1m (₹100 crore) for insurance cooperative societies. 

The government said this is intended to encourage community-based insurance models, particularly in agriculture, dairy and regional clusters, and improve financial inclusion in underserved areas.

According to Sanjay Agarwal, Senior Director at CareEdge Ratings, the reforms strengthen the insurance framework by improving access to capital, enhancing regulatory oversight and easing operational bottlenecks. 

He said the higher FDI limit provides headroom for incremental capital infusion, supporting growth and solvency, and is likely to improve insurance penetration and market resilience over time.

However, CareEdge noted that several proposed reforms, including composite licences, relaxed capital norms for new insurers, captive insurance, broader distribution architecture and changes to investment norms, are not part of the current bill and may be considered in the future.