Winning Bizness Desk

Mumbai.The Centre has approved 100 percent foreign direct investment in the insurance sector, allowing overseas investors to take full ownership in Indian insurance companies through the automatic route. The decision was cleared on May 2 and is expected to open up the sector to higher global capital. However, the government has kept a separate limit for LIC, where foreign investment will continue to be capped at 20 percent.

Key conditions for foreign investment in insurance sector

The government notification makes it clear that all foreign investment will remain subject to provisions of the Insurance Act, 1938. Companies receiving such investments must obtain licences or approvals from the Insurance Regulatory and Development Authority of India. The rules also require that at least one of the following positions must be held by an Indian citizen in such companies:

• Chairperson
• Managing Director
• Chief Executive Officer

This condition aims to retain a level of domestic control in management.

Separate framework and cap retained for lic investments

For Life Insurance Corporation of India, the government has maintained a distinct framework. Foreign investment through the automatic route will not go beyond 20 percent in LIC. The investment will continue to follow provisions of the LIC Act, 1956 along with the Insurance Act, 1938.

This signals the government’s cautious approach towards the country’s largest insurer while opening the rest of the sector more freely.

Intermediaries also get full foreign investment access

The move extends beyond insurers to include insurance intermediaries. These entities can now receive 100 percent foreign investment under the automatic route. The list includes:

• Insurance brokers and reinsurance brokers
• Insurance consultants and corporate agents
• Third party administrators
• Surveyors and loss assessors
• Managing general agents and insurance repositories

This is expected to deepen the insurance ecosystem and improve service delivery.

Law changes paved way for major sector reforms

The policy shift follows legislative changes passed in December 2025 under the Insurance Laws Amendment Bill. The amendments modified three key laws governing the sector:

• Insurance Act, 1938
• LIC Act, 1956
• IRDAI Act, 1999

The Department for Promotion of Industry and Internal Trade had indicated these changes earlier in February, setting the stage for broader reforms.

Relaxed rules for neighbouring countries and automatic route explained

In March, the government also eased rules for investments coming from countries sharing land borders with India by amending the Press Note 3 framework. Now, up to 10 percent non-controlling stake from such countries can come through the automatic route without prior approval.

The automatic route allows foreign investors to invest without seeking prior clearance from the government or the Reserve Bank of India. Press Note 3, on the other hand, is designed to regulate investments from neighbouring countries to ensure national security safeguards remain in place.