India’s life insurance sector has experienced a remarkable compound annual growth rate (CAGR) of 12% and 10.5% in terms of new business premiums and annual premium equivalents, respectively, from fiscal year 2019 to 2024, according to a report by Asit C Mehta Investment Intermediates. Despite facing some challenges, the sector continues to demonstrate its potential for growth and development.
Growth Stumbles in FY 2024
The fiscal year 2024 saw a slowdown in growth due to several factors, including regulatory changes, shifting consumer preferences, and increased competition from other investment avenues offering higher returns. This is highlighted in the “Thematic Report on India’s Life Insurance Sector.”
India’s Life Insurance Market Remains Underpenetrated
Despite the sector’s growth, India’s life insurance penetration rate stands at just 3.8%, significantly lower than the global average of 6.5%. To close this gap, the Insurance Regulatory and Development Authority of India (IRDAI) has introduced several initiatives aimed at increasing accessibility. Notable among these are the ‘Insurance for All’ mission set for 2047, along with programs such as Bima Vistaar, Bima Vahak, and Bima Sugam.
Factors Driving Growth
Several key factors contribute to the ongoing growth in India’s life insurance sector. These include a rise in per capita income, increasing labor force participation, and a growing focus on financial inclusion across the country. Such drivers are expected to help boost the sector’s development over the coming years.
Promising Future Growth
According to projections from Swiss Re, India’s life insurance industry is expected to grow at a 7.1% CAGR in real terms over the next five years, outpacing the emerging market average of 5.1% and significantly outperforming the 1.7% growth seen in advanced economies.
Challenges in FY 2024
The report also highlights some of the headwinds the sector faced in FY 2024, such as tax structure changes that impacted non-participating and high-premium products. Additionally, increased commission costs and a preference for market-linked products due to better returns and tax benefits also affected the sector’s performance during the year.
Conclusion
Despite recent challenges, India’s life insurance sector is poised for continued growth, with strong projections for the future. The introduction of regulatory initiatives, combined with the country’s improving economic fundamentals, positions the sector to reach new heights in the years to come.
