Economic Survey | Insurance sector grows despite decline in penetration

India’s insurance sector continues to expand, with total premiums reaching ₹11.2 lakh crore in FY24, marking a 7.7% year-on-year (YoY) growth, the Centre’s report card for 2024-25 said.

However, insurance penetration — the ratio of total premiums to GDP — declined slightly from 4% in FY23 to 3.7% in FY24, indicating that growth is being driven by existing policyholders rather than a broader increase in coverage. Life insurance penetration fell to 2.8%, while non-life insurance penetration remained steady at 1%, the Economic Survey released on Friday said.

The Survey said despite this decline, insurance density — which measures per capita premium — saw a modest rise. It increased from $92 in FY23 to $95 in FY24, driven mainly by growth in non-life insurance density, which rose from $22 to $25, while life insurance density remained at $70. The gross direct premium for non-life insurers grew to ₹2.9 lakh crore, with health and motor insurance being the primary contributors.

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The Survey said the life insurance industry recorded ₹8.3 lakh crore in premium income, with new business accounting for 45.6% of the total and renewal premiums making up 54.4%. The industry also paid out ₹5.8 lakh crore in benefits, including ₹42,284 crore in death claims.

Room for growth and emerging trends

The Survey said India’s overall insurance penetration at 3.7% remains significantly lower than the global average of 7%, presenting an opportunity for insurers to expand their reach, particularly in Tier 2 and 3 cities and rural areas where awareness and accessibility remain limited.

The Government-backed schemes like Pradhan Mantri Jeevan Jyoti Bima Yojana and Pradhan Mantri Jan Arogya Yojana already provide coverage to many, but innovative distribution models could help bridge the protection gap.

Quoting the Swiss Re Institute forecast, the Economic Survey said India’s insurance sector to grow at 11.1% annually, making it the fastest-growing market among G20 nations between 2024 and 2028. This growth will be driven by an expanding middle class, technological advancements, and supportive regulatory policies.

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In the life insurance segment, a shift toward protection and guaranteed return savings products is evident, with 40% of households now covered, largely due to LIC’s extensive network. The non-life sector is also expected to double its premium-to-GDP ratio over the next two decades, though it will still lag behind global benchmarks, the Survey said.

Future of the Industry

The Economic Survey said the Indian insurance industry faces evolving challenges, including climate change, geopolitical risks, and increasing life expectancy, which contribute to underwriting risks and a widening pension gap. Additionally, misselling, delayed claims settlements, AI-driven risks, cybersecurity vulnerabilities, and third-party interactions have become significant concerns.

The report card of the Government said to sustain long-term growth and efficiency, insurers must embrace innovation, digitization, and simplification, ensuring better risk management while expanding their customer base.

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With rising demand, regulatory support, and technological integration, India’s insurance sector is poised for substantial growth, but insurers will need to navigate these emerging risks to maintain trust and financial stability, the Survey said.