100% FDI: Insurance stocks in focus after Govt introduces Insurance Amendment Bill in Lok Sabha

SYNOPSIS: Insurance stocks remain in focus after the Insurance Amendment Bill proposes 100 percent FDI, tighter commission norms, and regulatory reforms, benefiting select insurers while raising competitive and margin pressures for distributors and standalone players.

On Tuesday, 16th December, Finance Minister Nirmala Sitharaman introduced the Insurance Laws (Amendment) Bill, 2025, “Sabka Bima Sabki Raksha”, in the Lok Sabha to boost insurance penetration and strengthen policyholder protection. The Bill proposes amendments to the Insurance Act, LIC Act and IRDAI Act, aligning with the government’s vision of “Insurance for All by 2047” and improving ease of doing business.

FDI Limit Raised

A key proposal is raising the FDI limit in insurance companies from 74 percent to 100 percent to attract long-term foreign capital and support sector expansion. The Bill proposes a Policyholders’ Education and Protection Fund and empowers IRDAI to recover wrongful gains from insurers and intermediaries.

Digital Infrastructure and Regulatory Reforms

The Bill introduces a legal framework for digital public infrastructure in the insurance sector, with an emphasis on data security and policyholder privacy. To ease operations, the Bill also proposes one-time registration for intermediaries and raises the IRDAI approval threshold for share transfers from 1 percent to 5 percent of paid-up equity capital.

Lower Capital Norms for Foreign Reinsurers

The Bill lowers the Net Owned Fund requirement for foreign reinsurers to Rs. 1,000 crore from Rs. 5,000 crore, encouraging greater global participation in India’s reinsurance market. It proposes a Standard Operating Procedure for IRDAI regulations and a transparent framework for imposing penalties.

Overall, the Bill aims to expand insurance coverage, attract new participants, and strengthen policyholder protection while accelerating sector growth.

Impact on Insurance Stocks

Shares of PB Fintech Limited, the parent company of Policybazaar, moved down by around 6 percent to hit an intraday low at Rs. 1,813.05 on BSE, following reports suggesting tighter regulation on insurance agent commissions.

According to media reports, the Insurance Amendment Bill introduced in the Lok Sabha proposes granting IRDAI the authority to prescribe limits on commissions payable to insurance agents, a move that could alter existing compensation frameworks.

The proposed changes are expected to enhance regulatory oversight over commission payouts, disclosures, and incentive structures for agents and intermediaries. Under the new framework, IRDAI may directly determine commission caps through regulations, replacing the earlier system that allowed greater flexibility. This could include setting upper limits on all forms of remuneration and incentives.

Such measures may impact insurance distribution platforms that depend on variable or higher commission models, potentially affecting near-term profitability and business economics.

On the positive side, Max Financial Services Limited could benefit from provisions allowing the merger of insurance businesses with non-insurance entities, which may help streamline corporate structures and unlock shareholder value.

The insurance sector has already attracted foreign direct investments (FDI) of approximately Rs. 82,000 crore. In addition, amendments to the LIC Act aim to grant greater operational flexibility to the Life Insurance Corporation of India, including decision-making powers related to branch expansion, recruitment, and alignment of overseas operations with local regulatory requirements.

However, the absence of a Composite Insurance Licence provision in the Bill is viewed as a negative for insurance stocks such as HDFC Life, LIC, and Star Health Insurance. These companies had earlier indicated plans to diversify into other insurance segments, including health and motor insurance. 

A composite license permits insurers to provide both life and non-life insurance under a single registration, combining these activities within one unified entity. Without a composite licence framework, these insurers may be restricted from expanding into new lines of business, limiting cross-segment growth opportunities.

SBI Life is likely to be relatively benefited, as the Bill does not introduce open architecture for agents, thereby preserving its existing distribution model and commission structure. In contrast, HDFC Life, LIC, and Star Health may face constraints on diversification due to the missing composite licence provision.

Meanwhile, the proposal to allow 100 percent FDI in insurance could intensify competition, particularly for standalone health insurers like Star Health, as global players may enter the domestic market. Reinsurers such as General Insurance Corporation of India (GIC Re) may also face increased competition following the proposed reduction in capital requirements for foreign reinsurers.

Written by Shivani Singh

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