Introduction

Pursuant to a Gazette Notification dated February 3, 2026, the Government of India (‘Government’) notified the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025 (‘Amendment Act’), which amends the Insurance Act, 1938 (‘Insurance Act’), the Insurance Regulatory and Development Authority Act, 1999 and the Life Insurance Corporation Act, 1956. All provisions of the Amendment Act  are in effect from February 5, 2026 (except Section 25 of the Amendment Act pertaining to restrictions on directors and officers of an insurance company accepting roles in insurers carrying on the same class of insurance business or a banking company or an investment company). In parallel, the Ministry of Finance notified the Indian Insurance Companies (Foreign Investment) Amendment Rules, 2025 on December 30, 2025 which came into force on the same date (‘Amendment Rules’).  Read together, these reforms introduce significant changes to India’s insurance regime, including liberalising foreign investment in Indian insurers up to 100%, enabling insurer–non-insurer amalgamations and broadening the framework for recognised market participants and intermediaries.

What Has Changed

The key changes enacted as part of these amendments are set out below:

1. Liberalising Foreign Ownership in Indian Insurance Companies: The foreign direct investment (‘FDI’) ceiling in Indian insurance companies has been increased from 74% to 100% under the automatic route (for foreign exchange purposes). The Amendment Rules align the foreign investment limit with the Insurance Act, and replace legacy references under the foreign exchange regime with the Foreign Exchange Management (Non-debt Instruments) Rules, 2019. In parallel, key governance-linked conditions historically tied to higher foreign shareholding thresholds have been rationalised with the requirement for majority of directors and key management persons being resident Indian citizens being done away with. Dividend-retention related conditions linked to solvency triggers for insurance companies having foreign ownership greater than 49% have also been deleted through the Amendment Rules.
2. Clarification on Amalgamation of Insurance Companies with Non-Insurance Companies: The Amendment Act expressly enables amalgamation or transfer of insurance business between an insurer and a non-insurance company, subject to Insurance Regulatory and Development Authority of India (‘IRDAI’) approval. This resolves long-standing ambiguity under Section 35 of the Insurance Act with respect to the amalgamation of insurance businesses with non-insurance businesses.
3. Expanding the Scope of ‘Insurance Business’: The amended definition of ‘Insurance business’ is now defined to cover the business of effecting insurance contracts and includes any other form of contract that may be notified by the Government in consultation with IRDAI. This change is in line with the intent of permitting insurance companies to undertake activities that are incidental to their insurance business and enables the Government to notify additional activities thereby potentially allowing Indian insurance companies to expand the scope of services offered in India.
4. Thresholds for Approval Requirements Revised: Prior IRDAI approval is now required only for transfers exceeding 5% of an insurer’s paid-up equity share capital (in place of the earlier 1% threshold). This relaxation is expected to materially ease routine secondary transfers—particularly secondary sell-downs, by reducing the frequency with which IRDAI approval is triggered, while still preserving the regulator’s oversight for larger or potentially control-impacting changes to shareholding.
5. Recognition of Managing General Agents as Intermediaries: The Amendment Act proposes to expressly bring managing general agents (‘MGA’) within the definition of ‘insurance intermediaries’. While this provides statutory recognition for the business of MGAs for global MGAs exploring an entry into India, the ability to operate in India will be contingent on the regulatory framework adopted by IRDAI. Notably, MGAs are already acknowledged within the International Financial Services Centre regime as eligible applicants for operating an International Financial Service Centre Insurance Office.
6. Net Owned Fund for Reinsurance: The reinsurance entry threshold is lowered. The net owned funds requirement for foreign reinsurers seeking to establish a branch in India is reduced to INR 10 billion (approx. USD 110 million), aligning with the policy intent to onshore capacity and deepen the domestic risk market.
7. Revised Penalty Framework: The maximum penalty for contraventions under the Insurance Act has increased from INR 10 million (approx. USD 110,000) to INR 100 million (approx. USD 1.1 million), with a statutory matrix for assessing gravity, repetition, gains, losses to policyholders and proportionality while imposing penalties. Further, IRDAI may issue directions in the public interest or to curb detrimental practices, including directions of disgorgement. The chairperson or whole-time members may issue subsidiary instructions to clarify regulations and set ancillary procedures, with consultative-committee input and limited urgency carve-outs.

Conclusion

Over the last few years, a range of insurance-law reforms have been under discussion, and it is encouraging that a meaningful set of those proposals has now been carried into the Amendment Act. In any event, the Amendment Act is likely to be a turning point for the sector. Its practical significance, will depend on how quickly IRDAI updates its regulations, circulars and operating guidelines to translate the statutory intent into a clear, implementable framework.