Aug 12, 2025: Finance Minister Nirmala Sitharaman told Parliament on Tuesday (August 12, 2025) that the proposed raising of the FDI limit in Indian insurance companies to 100 percent would bring more players into the market and generate employment opportunities. She went on to say that "improved technologies and automation would lead to faster underwriting, claim processing, improved turnaround time, thereby reducing cost and enhancing overall efficiency of the sector" as a result of the improvements. The increase in FDI in Indian insurance companies from 74% to 100% was announced in the Union Budget on February 1, 2025.
By aligning insurer investment with policyholder interests, the Insurance Act of 1938 regulates investment by insurers with a strong emphasis on safety, liquidity, and regulatory oversight. The time, manner, form, conditions, and instruments permitted for investment are all outlined in the Act. Insurers are mandated to invest a specified percentage of funds in government securities and other approved securities as specified by Insurance Regulatory and Development Authority of India (IRDAI).
"In addition, the Act prohibits insurance companies in India from investing any of their funds outside of India. As a result, all insurance company funds must be obligatorily invested in India," she responded in the Rajya Sabha. She stated that the Act further requires every insurer to maintain an excess of assets over liabilities of not less than 50% of the minimum capital amount at all times in order to safeguard policyholders and ensure financial stability in the insurance industry. Irdai further mandates insurers to maintain the control level of solvency of 150% at all times, she said.
In addition, the Act grants Irdai the authority to appoint an Administrator to oversee the operations of an insurer if that insurer is acting in a manner that is detrimental to the interests of policyholders. Besides, she said, the regulatory oversight of the Irdai ensures transparency and policyholder protection by promoting fair business practices, solvency monitoring, supervision and efficient grievance redressal.
All insurance companies are required to adhere to the Companies Act of 2013 at all times for all governance-related matters because they are board-governed entities. Along with the Indian Insurance Companies (Foreign Investment) Rules, 2015, this regulates various operations, including dividend payment, profit repatriation, and insurance company board composition. She stated, "All these provisions and mechanisms act as safeguards and ensure adequate checks and balances for the conduct of insurance business in India." In response to a different question, Sitharaman stated that, as a result of a recent amendment to Section 10A (sub section 2a (i)) of the Banking Regulation Act 1949 (BR Act), the maximum continuous tenure of directors of cooperative banks (excluding Chairperson and Whole-time Directors) has been increased from 8 to 10 years. This provision has come into effect from August 1, 2025, she added.