Government relaxes insurance governance rules to match 100% FDI policy

India has relaxed board composition and management residency norms for insurance companies with foreign investment, aligning regulations with the newly enacted insurance law and paving the way for deeper global participation in the sector.

India has formally overhauled key regulatory norms governing insurance companies with foreign investment, following its decision to allow up to 100 per cent foreign direct investment (FDI) in the sector. The finance ministry has notified revised rules that significantly dilute earlier restrictions on board composition and senior management residency.

Under the amended framework, insurance companies with foreign shareholding will no longer be required to have a majority of directors or key managerial personnel who are Indian residents. Instead, the new rules mandate that at least one among the chief executive officer, managing director, or chairperson of the board must be a resident Indian citizen, according to a recent Gazette notification.

Alignment with new insurance law

The revised norms are part of the government’s effort to operationalise the recently enacted insurance legislation passed during the Winter Session of Parliament. The law, which has received presidential assent, aims to modernise India’s insurance ecosystem and make it more attractive to long-term global capital.

The finance ministry said the final rules were notified after consultations on a draft released in August. The changes came into effect immediately upon their publication in the official gazette on December 30, 2025.

Key rule changes and omissions

In a significant move, the notification has removed Rule 4A, which earlier imposed conditions on insurers with foreign investment exceeding 49 per cent. The scrapped provision required such companies to retain at least half of their net profits in general reserves if their solvency margin fell below prescribed levels, even while paying dividends.

The dropped rule had also mandated that at least 50 per cent of board members be independent directors, unless the chairperson was independent, in which case the threshold was one-third. These requirements will no longer apply to insurers with foreign investors.

Simplification of FEMA and FDI provisions

The notification also streamlines regulatory references by replacing outdated Foreign Exchange Management Act (FEMA) regulations from 2000 with the FEMA (Non-Debt Instrument) Rules, 2019. Additionally, all references to the earlier 74 per cent FDI cap have been replaced with language linked directly to the limits prescribed under the Insurance Act, 1938.

Further, three clauses applicable to foreign-invested insurers have been removed. These include the requirement for prior approval from the Insurance Regulatory and Development Authority of India (IRDAI) for dividend repatriation, restrictions on payments to foreign group entities, and rigid prescriptions on board and management composition.

The broader legislative package, titled the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, also amends the LIC Act, 1956, and the IRDAI Act, 1999, reinforcing the government’s push to reform and liberalise the insurance sector.