The Union Budget 2025 is expected to bring transformative
reforms to India’s insurance sector, accelerating its growth and enhancing
accessibility as part of the country’s ambitious “Insurance for All by 2047”
vision. Over the past several months,
the Department of Financial Services in the Finance Ministry has completed an
exhaustive exercise of seeking stakeholders’ comments on various likely
amendments to the Insurance Act. IRDAI Chairman Debasish Panda has been
promoting India’s insurance sector abroad through investment roadshows. All
these amendments are likely to be introduced through the Finance Bill, 2025,
said sources.
A key reform under consideration is an increase in
the foreign direct investment (FDI) limit in the insurance sector from 74
per cent to 100 per cent. This
change, expected to be introduced through the Finance Bill 2025, marks a
continuation of previous reforms: the FDI cap was raised from 26 per cent to 49
per cent in 2015 and further to 74 per cent in 2021. The proposed increase to 100 per cent FDI aims to fully open India’s
insurance market to global investors, paving the way for significant capital
inflows.
Another
anticipated announcement is likely to come in the form of a roadmap for the
reduction in Goods and Services Tax (GST) rates on term and health insurance
premiums, currently taxed at 18 per cent.
The reform is expected to be implemented under the aegis of the GST Council,
ensuring affordability for families across income groups.
The
government is also likely to unveil a framework for composite licenses,
allowing insurers to offer multiple categories of insurance — life, health, and general — under a single license.
This move is
expected to enhance operational flexibility, streamline regulatory processes,
and foster innovation. Insurers will be better positioned to cater to diverse
customer needs, improving their competitive edge in the market.
To make insurance more customer-centric, the budget
may introduce reforms enabling insurers to offer value-added services. These could include health-monitoring devices
bundled with health insurance policies or rewards programs incentivizing
healthy behavior and timely premium payments.
Such
initiatives align with global trends in personalized insurance offerings,
aiming to attract new policyholders and enhance customer retention.
However, one
anticipated reform—the proposal to allow insurance companies to sell other
financial products like bank deposits and mutual funds—will likely be absent
from this year’s budget. Sources indicate that regulatory challenges and
operational complexities have delayed its implementation.
Tapan
Singhel, Managing Director & CEO of Bajaj Allianz General Insurance said: “As we approach Budget 2025, it is crucial to implement measures that make
insurance more accessible and impactful for individuals and businesses alike. If a GST reduction on health insurance premiums
is not feasible, allowing a complete deduction of premiums paid towards health
insurance under the existing tax regime would significantly encourage more
people to prioritize their health protection”.
Subhrajit Mukhopadhyay, Executive Director,
Edelweiss Life Insurance said that the slew of insurance reforms including
permissible FDI limit, and reduction in capital requirements likely to be
ushered in the Budget will significantly accelerate the growth of the industry
and support the government as well as regulator’s financial inclusion agenda. These proposed reforms will be a positive step in
facilitating insurance adoption at the last mile and bolster the overall
sectoral growth, Mukhopadhyay added.