India’s life insurance industry is expected to grow at a compound annual growth rate (CAGR) of approximately 14.5 per cent over the next decade, driven by awareness, product innovation and increasing demand, according to a report by PL Capital (Prabhudas Lilladher Group). Backed by a projected 10.5 per cent nominal GDP growth and a rising share of financial assets, household financial savings are expected to grow at around 11 per cent CAGR, providing a strong foundation for the life insurance sector. With growing financial inclusion and the recent Goods and Services Tax (GST) exemption on insurance products, the savings-linked insurance portfolio is expected to grow at a 12.5 per cent CAGR, the report said. The report also anticipates that private insurers, which continue to gain market share, could see slightly higher growth of 15 per cent CAGR over the period.
Past two decades show resilient growth
Between FY2005 and FY2025, the Indian life insurance industry grew at a CAGR of 11 per cent, reaching Rs 1203 billion on an individual annual premium equivalent (APE) basis. Growth was particularly strong in the early years (FY08), recording a 32 per cent CAGR as unit-linked insurance plans (ULIPs) gained popularity amid bullish equity markets. However, the industry faced headwinds during FY14, with a -1 per cent CAGR, attributed to regulatory changes around ULIP products and weak investor sentiment following the global financial crisis. A recovery followed from FY15, when the industry grew due to economic revival, greater financialisation of savings, and product innovation. Despite a slowdown during the COVID-19 pandemic (FY20–22), growth has since rebounded to 11 per cent CAGR in FY22–25.
ULIP Growth May Moderate
While ULIP products remain a significant component of insurers’ portfolios, analysts expect this trend to moderate in FY26. Management commentary for Q1FY26 indicates a shift in consumer preference away from ULIPs due to increased equity market volatility. Insurers have sought to boost ULIP appeal through added features such as return of premium (RoP), enhanced sum assured, flexible fund options, and comprehensive nominee benefits. However, with non-linked products like protection plans, annuities, and NPAR gaining traction, a gradual rebalancing in favour of more stable offerings is expected.
Insurers are also recalibrating their distribution mix. While bancassurance continues to dominate, contributing more than 50 per cent of sales for most players, private insurers are investing in agency networks and direct digital channels to reduce dependence on single-bank partnerships and penetrate Tier-2 and Tier-3 markets.
Long-Term potential remains strong
India’s life insurance penetration stood at 2.8 per cent of GDP in FY24—well below the 5.6 per cent average in developed markets. It highlights the long-term potential for expansion. “We remain bullish on the sector’s long-term outlook,” the report said, pointing to growth driven by the protection, annuity, and non-participating segments. While valuations have seen a correction due to regulatory uncertainties, insurers are expected to weather near-term margin pressures in FY26 arising from GST exemption impacts.