Premiums Rise, Penetration Declines in FY 2023-24
As of the fiscal year 2023-24, India’s insurance market has demonstrated robust growth. The total insurance premium increased by 7.7 per cent, reaching Rs 11.2 lakh crore. However, insurance penetration —measured as the ratio of premiums to GDP— experienced a slight decline from 4 per cent in FY23 to 3.7 per cent in FY24. Life insurance penetration decreased marginally from 3 per cent to 2.8 per cent, while non-life insurance penetration remained stable at 1per cent. Insurance density which indicates per capita premium expenditure, saw a modest rise from USD 92 in FY23 to USD 95 in FY24. The non-life insurance sector’s gross direct premium grew to Rs 2.9 lakh crore, primarily driven by health and motor segments. The life insurance industry recorded a premium income of Rs 8.3 lakh crore, with renewal premiums accounting for 54.4 per cent and new businesses contributing 45.6 per cent.
Notably, a significant portion of India’s population and assets remain uninsured. Limited financial literacy and suboptimal advisory services have contributed to concerns around mis-selling in the market. To top it all, Indian consumers are highly price sensitive. As per a report by Localcircles, over two-third of policyholders have seen their insurance premiums increase by 50 to 200 per cent over the past three years. Although IRDAI has capped health premium increases for senior citizens at 10 per cent, further regulation is needed to enhance insurance penetration.
Despite these challenges, a ‘glass half full’ perspective highlights immense growth opportunities for India’s insurance sector. India’s insurance industry is at the early stages of an insurance penetration S-curve, presenting significant potential for accelerated growth and increased profitability. The sector has outpaced some of its Asian counterparts in premium growth and has achieved a strong market valuation. This robust performance has driven valuation multiples of Indian life insurers to a premium of seven to ten times price-to-book.
Implications of 100% FDI in Insurance
In an effort to revitalize the insurance sector, Finance Minister Nirmala Sitharaman has proposed increasing the foreign direct investment (FDI) cap from 74 per cent to 100 per cent. A key stipulation attached to this proposal is that insurers benefitting from the increased FDI must invest the entire premium within India, ensuring that the domestic economy benefits directly from the influx of funds.
As the industry undergoes this transformative change, it will be crucial to address emerging risks while fostering inclusive growth. While factors such as rising premiums, strong competition, and capital inflows may drive short-term expansion, overcoming the existing gaps in product innovation and distribution strategies will be essential for sustained progress. To tackle evolving risks, insurers must enhance their capabilities through rapid innovation. At the same time, they should optimise efficiency by focusing on digitisation, standardisation, and process simplification.
Need for products that suit Indian market
In today’s risk-laden environment—marked by cyber threats, climate change, pandemics, and an increasing reliance on intangible assets—insurance coverage remains inadequate in several areas. Given India’s unique socio-economic landscape, insurers need to develop customised solutions that address emerging risks and meet the diverse needs of the population. The rapidly evolving regulatory landscape demands continuous updates too.
To effectively serve consumers and navigate the evolving risk landscape, Indian insurers must move beyond conventional models, embracing agile product development and tailoring solutions to diverse customer needs. The fresh influx of funds is expected to drive innovation and augment the efforts for increasing insurance penetration in the country.
Impact on Consumers
The increase in FDI is expected to lead to a more competitive market, resulting in better product offerings, improved customer service, and more competitive pricing. Consumers stand to gain from a broader range of tailored insurance products, greater transparency, and more efficient claims processing. Additionally, the infusion of foreign capital could drive technological advancements, making insurance services more accessible, especially in underserved regions.
