Government Allows 100% FDI in Insurance to Boost Jobs and Efficiency

Finance Minister Nirmala Sitharaman has announced that the government will now allow 100% Foreign Direct Investment (FDI) in the insurance sector. This major reform, presented in the Union Budget 2025, raises the FDI limit from the earlier cap of 74 percent. The move is aimed at attracting more international players, improving competition, generating employment, and increasing the overall efficiency of insurance services in India.

According to the minister, full foreign ownership will allow insurance companies to adopt better technology and automation. This is expected to result in faster policy approvals, quicker claim processing, and improved customer service. It will also help insurers expand their services across the country, especially in under-served and rural areas.

Despite the increase in FDI, strong regulatory safeguards will remain in place under the Insurance Act, 1938. Insurance companies will still be required to invest only within India and in safe, approved government securities. Their investments must always align with the interests of policyholders. Companies must also maintain at least 50 percent more assets than liabilities and a solvency margin of 150%, as per IRDAI guidelines.

The Insurance Regulatory and Development Authority of India (IRDAI) will continue to supervise all insurance firms to ensure transparency, financial stability, and proper customer service. If an insurer is found working against the interest of policyholders, the IRDAI can dismiss the board and appoint an administrator. Insurance companies will also need to comply with the Companies Act, 2013, which governs board structure, dividend rules, and corporate governance.

In a related development, the government has also amended the Banking Regulation Act, 1949. From August 1, 2025, the maximum term for directors of co-operative banks, excluding chairpersons and whole-time directors has been extended from 8 years to 10 years.

These changes are part of the government’s efforts to modernize the insurance and banking sectors, attract global investments, and ensure better services for Indian consumers while keeping strong regulatory protections in place.