On the face of it, GoI's decision to permit 100% FDI in insurance through Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025 makes sense. By fully liberalising what was once a state monopoly, foreign capital and technology should drive greater competition, innovation and customer-centricity in the poorly penetrated Indian market.
But like the bill's name, this could represent hope more than a guarantee for three reasons:
Market competition
Despite relaxing many rules about maintaining Indian residents in key management positions, dividend retention norms and statutory number of independent directors, expecting foreign insurers to go-it-alone in India is a tall task. Apart from significant and long-term capital investment, a greenfield foreign insurer will need to contend with a highly competitive market in which of the 61 life and general insurance companies operating in India (plus 13 reinsurers and foreign reinsurance branches), 33 represent JVs between foreign and Indian partners, and 5 control about 80% of the market.
This begs two questions:
No guarantee for innovation
Motivation for new products and their successful launch hinge on opportunities of scale, ability to pay, and effective and efficient distribution channels. Unlike developed and certain developing nations, where insurance penetration (insurance premiums as a percentage of GDP) stands at 11% and 7%, respectively, India's penetration has remained 3.7% the last few years. While the industry has kept pace with economic growth, insurance density and market coverage continue to lag.
Also, despite reassuring news that 62% of new insurance policies came from tier-2 cities in FY25, dependence on traditional distribution network of agents, brokers and bancassurance tie-ups, coupled with challenges of low-ticket and low-volume products from over-personalisation and innovation, will exacerbate profitability, distribution and consumer understanding. It's far likelier that new entrants will focus on existing markets and product constructs for foreseeable future.
Claim settlement
There's the issue of credibility. It's no secret that policyholders ultimately judge insurers at only one moment of truth: claim settlement. This remains a major issue because of mis-selling of life insurance policies, annual increase of which has been estimated at 15% y-o-y, and general and health insurance grievances, instances of which have reportedly increased by 45% in the last year.
These critical issues underscore the grim reality that unless claims outcomes visibly improve in fairness, speed, clarity and communication, the sector risks repeating past cycles where penetration rises temporarily but public trust remains fragile. In this context, success of the 100% FDI regime won't be measured by capital inflows, valuations, or market share alone, but by whether insurers can convert regulatory reform into lived, customer-experience improvements, particularly during moments of financial and emotional vulnerability.
To achieve this, the industry, under IRDAI, must adopt and implement a claims governance action framework that focuses on:
Shifting from a modus operandi of contractual defence to one of claims fairness, to meet global best practices of materiality, intent and customer context, rather than simple mechanical repudiation.
Embedding claims adjudication at CXO and board level to ensure claims outcomes are a metric of corporate philosophy, not operational afterthought.
Simplifying products to reduce future disputes by paring policy structures, reducing sub-limits, narrowing exclusions and standardising language to reduce friction and downstream litigation costs.
Enhancing compliance standards across TPAs and hospital networks through clearer accountability frameworks, focused SLA adherence in hospital empanelment, transparent package pricing and time-bound issue handling, to support a balanced insurer-TPA-hospital ecosystem.
Redesigning claims communications and making grievance redressal enforceable by creating clear claim decision letters, appointing single-point-of-contact claims managers, facilitating time-bound execution of ombudsman awards, providing public disclosure of grievance resolution timelines, and enforcing penalties for repeated claim reversals.
Aligning distribution incentives with sales and claims outcomes to discourage aggressive sales and drive higher penetration, instead of singling out commissions to regulate price ceilings.
If executed well, 100% FDI can mark transition of industry from a set of premium-collection companies to a claims-governance-led protection-delivery ecosystem. If not, this legislation risks becoming another phase of tentative growth without trust-led sustainability.
But like the bill's name, this could represent hope more than a guarantee for three reasons:
Market competition
Despite relaxing many rules about maintaining Indian residents in key management positions, dividend retention norms and statutory number of independent directors, expecting foreign insurers to go-it-alone in India is a tall task. Apart from significant and long-term capital investment, a greenfield foreign insurer will need to contend with a highly competitive market in which of the 61 life and general insurance companies operating in India (plus 13 reinsurers and foreign reinsurance branches), 33 represent JVs between foreign and Indian partners, and 5 control about 80% of the market.
This begs two questions:
- Why would it not make more sense for existing JV foreign partners to increase their shareholding and investments to capture a greater share?
- Why would players who haven't thought it fit to enter India earlier using the JV route suddenly see new opportunities today?
No guarantee for innovation
Motivation for new products and their successful launch hinge on opportunities of scale, ability to pay, and effective and efficient distribution channels. Unlike developed and certain developing nations, where insurance penetration (insurance premiums as a percentage of GDP) stands at 11% and 7%, respectively, India's penetration has remained 3.7% the last few years. While the industry has kept pace with economic growth, insurance density and market coverage continue to lag.
Also, despite reassuring news that 62% of new insurance policies came from tier-2 cities in FY25, dependence on traditional distribution network of agents, brokers and bancassurance tie-ups, coupled with challenges of low-ticket and low-volume products from over-personalisation and innovation, will exacerbate profitability, distribution and consumer understanding. It's far likelier that new entrants will focus on existing markets and product constructs for foreseeable future.
Claim settlement
There's the issue of credibility. It's no secret that policyholders ultimately judge insurers at only one moment of truth: claim settlement. This remains a major issue because of mis-selling of life insurance policies, annual increase of which has been estimated at 15% y-o-y, and general and health insurance grievances, instances of which have reportedly increased by 45% in the last year.
These critical issues underscore the grim reality that unless claims outcomes visibly improve in fairness, speed, clarity and communication, the sector risks repeating past cycles where penetration rises temporarily but public trust remains fragile. In this context, success of the 100% FDI regime won't be measured by capital inflows, valuations, or market share alone, but by whether insurers can convert regulatory reform into lived, customer-experience improvements, particularly during moments of financial and emotional vulnerability.
To achieve this, the industry, under IRDAI, must adopt and implement a claims governance action framework that focuses on:
Shifting from a modus operandi of contractual defence to one of claims fairness, to meet global best practices of materiality, intent and customer context, rather than simple mechanical repudiation.
Embedding claims adjudication at CXO and board level to ensure claims outcomes are a metric of corporate philosophy, not operational afterthought.
Simplifying products to reduce future disputes by paring policy structures, reducing sub-limits, narrowing exclusions and standardising language to reduce friction and downstream litigation costs.
Enhancing compliance standards across TPAs and hospital networks through clearer accountability frameworks, focused SLA adherence in hospital empanelment, transparent package pricing and time-bound issue handling, to support a balanced insurer-TPA-hospital ecosystem.
Redesigning claims communications and making grievance redressal enforceable by creating clear claim decision letters, appointing single-point-of-contact claims managers, facilitating time-bound execution of ombudsman awards, providing public disclosure of grievance resolution timelines, and enforcing penalties for repeated claim reversals.
Aligning distribution incentives with sales and claims outcomes to discourage aggressive sales and drive higher penetration, instead of singling out commissions to regulate price ceilings.
If executed well, 100% FDI can mark transition of industry from a set of premium-collection companies to a claims-governance-led protection-delivery ecosystem. If not, this legislation risks becoming another phase of tentative growth without trust-led sustainability.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
Ateesh Tankha
The writer is founder-CEO, ALSOWISE Content Solutions
Ashish Dave
Ashish Dave is a senior insurance professional