The Finance Ministry has notified comprehensive amendments to the Indian Insurance Companies (Foreign Investment) Rules, 2015, marking a significant step in operationalizing the government's decision to allow up to 100% foreign direct investment in the insurance sector. The revised regulatory framework brings substantial changes to foreign investment norms while ensuring adequate Indian management representation.

Key Regulatory Changes

The amended rules introduce several fundamental modifications to the existing framework:

Governance and Management Requirements

The notification establishes clear governance norms for insurers with foreign investment. A critical requirement mandates that at least one among the Chief Executive Officer, Managing Director, or Chairperson of the board must be a resident Indian citizen. This provision applies regardless of the level of foreign ownership, ensuring Indian management presence across all investment scenarios.

Regulatory Alignment and Definitions

The Finance Ministry has systematically updated multiple definitions throughout the rules, replacing references to older FEMA regulations with the current non-debt instruments regime. The rules now explicitly include investments by Foreign Venture Capital Investors within the foreign direct investment definition, subject to permissibility under FEMA norms. Additionally, certain overlapping clauses from earlier rules have been omitted to eliminate redundancies with updated foreign exchange regulations.

Policy Objectives and Impact

According to the Department of Financial Services Secretary, the amendments aim to provide regulatory clarity while facilitating higher foreign participation in the insurance sector. The changes support the government's broader reform agenda focused on:

• Attracting long-term capital investment
• Improving insurance penetration across markets
• Strengthening the sector's overall growth potential
• Maintaining adequate Indian management oversight

The notification represents the operational implementation of the government's earlier announcement to raise the FDI cap in insurance to 100%, completing the regulatory framework necessary for enhanced foreign investment in India's insurance sector.

The finance ministry has launched a comprehensive review of the cup-and-cap model under the government's flagship crop insurance programme, Pradhan Mantri Fasal Bima Yojana (PMFBY), responding to concerns over a significant decline in crop insurance business across the country.

Premium Collections Face Sharp Decline

Industry estimates indicate that premium collections under the scheme could experience a substantial drop. The projected figures highlight the scale of the challenge facing the programme.

The decline stems from large states shifting away from the traditional PMFBY format towards the cup-and-cap risk-sharing model, which limits insurer exposure and profitability while reducing premiums.

Understanding the Cup-and-Cap Model

The cup-and-cap model represents a risk-sharing structure between insurers and governments. Under this arrangement:

• The Centre and states bear excess claims beyond a pre-agreed 'cap' threshold, typically set at 110.00% or 130.00% of the premium amount.
• Insurers must return surplus premium to governments if claims fall below the lower 'cup' threshold of 60.00% or 80.00%.

Comprehensive Data Collection Initiative

As part of the review process, insurers have been required to submit detailed company-wise data to address several critical aspects of the programme. The review panel seeks to determine whether losses or thin margins in crop insurance are being offset by profits from other business lines, particularly general insurance operations.

The data collection focuses on multiple areas:

• Pricing mechanisms and underwriting discipline
• Long-term sustainability of the scheme
• Granular farmer coverage data including total farmers, eligible participants, and enrolled members
• Channel-wise enrollment breakdowns covering banks, common service centres, and other intermediaries
• Agriculture department-led insurance initiatives

Maharashtra's Dramatic Market Shift

Maharashtra's experience illustrates the broader challenges facing the programme. The state, which previously represented nearly one-third of the crop insurance market, has witnessed a dramatic transformation in participation levels.

The significant reduction in both premiums and farmer participation followed structural changes to the scheme, including the rollback of the ₹1.00 premium offer and implementation of tighter compensation norms.

Programme Scope and Future Considerations

PMFBY ranks among the world's largest crop insurance programmes, providing coverage to approximately 70 million farmers since its launch in 2016. The programme has paid cumulative claims of around ₹1.83 lakh crore over this period.

The ministry is evaluating whether the existing framework delivers meaningful risk protection to farmers, while newer models such as index-linked and reference price-based covers remain in early developmental stages. The review aims to address fundamental questions about farmer participation, including barriers related to awareness, access constraints, and distribution challenges that prevent eligible farmers from joining the scheme.