The Insurance Laws (Amendment) Act, 2025 — which raises the cap on foreign direct investment (FDI) in the insurance sector from 74% to 100% — was officially brought into force on February 5, 2026, through a Gazette notification dated February 3, 2026, issued by the Ministry of Finance.

The amendment, passed by Parliament as part of the Union Budget session legislative agenda, marks a landmark liberalisation of India's insurance sector. Prior to this change, FDI in insurance was capped at 49%, raised to 74% under the Insurance Laws (Amendment) Act, 2021. The new legislation completes the journey to full foreign ownership.

Key provisions of the Act include: (1) FDI in insurance companies raised from 74% to 100%, allowing wholly foreign-owned insurance entities; (2) The requirement that the Chairman, Managing Director, or CEO of any insurance company must be an Indian citizen is retained — this ensures management control remains with Indian nationals even when ownership is foreign; (3) Section 25 of the original Act, which dealt with certain structural restrictions, has been deferred and will not be enforced immediately, giving industry time to adjust.

The government's rationale for this liberalisation is to boost insurance penetration in India, which stood at approximately 3.7% of GDP — well below the global average of 7%. Higher FDI is expected to bring in capital, technology, and global best practices into the sector, expand product offerings, and enable deeper reach into rural and semi-urban markets.

The Insurance Regulatory and Development Authority of India (IRDAI) will oversee compliance with the new ownership norms. Existing joint ventures and insurance companies will have a window to restructure their shareholding patterns as required.

For RPSC aspirants, this is relevant under Indian economy — financial sector reforms, FDI policy, and insurance sector governance.