Paid-up capital of life insurers rises 7% in FY25 on fresh infusions
The paid-up capital of India’s life insurance sector increased 7.12 per cent to Rs. 39,714 crore in FY25, supported by fresh capital infusions by insurers, according to data released by the Insurance Regulatory and Development Authority of India. The net increase in paid-up capital during the year stood at Rs. 2,641 crore.
The expansion was driven primarily by an additional Rs. 1,600 crore infused into Tata AIA Life Insurance Company and Rs. 1,040 crore invested collectively by 12 life insurers. During the year, one private insurer returned Rs. 70 crore of capital, while five private life insurers raised Rs. 4,490 crore through other forms of capital. As of March 2025, total other forms of capital in the life insurance sector stood at Rs. 9,651 crore.
Renewal premiums continued to dominate total premium income, contributing 55 per cent in FY25. New business premium grew 5.12 per cent, compared with 8.08 per cent growth in renewal premium. The life insurance industry reported profits of Rs. 56,006 crore, up 18.14 per cent year-on-year, with 18 of the 25 insurers posting profits during the year.
High distribution costs continue to constrain insurance penetration: RBI
High distribution and acquisition costs are limiting the expansion of insurance coverage in India by reducing affordability and widening the gap between insurance density and penetration, the Reserve Bank of India said in its Financial Stability Report.
The RBI noted that premium growth in recent years has been driven more by distribution-led strategies than by improvements in operating efficiency. As a result, growth has largely reflected higher spending by existing policyholders rather than a broadening of the insured base. In the non-life segment, commission expenses have risen significantly faster than other operating costs, contributing to persistent underwriting losses and greater reliance on investment income.
In the life insurance sector, the RBI highlighted that front-loaded acquisition costs compress early policy value, leading to weaker persistency and higher surrender rates. This limits the ability of insurers to pass scale efficiencies on to customers. The central bank also observed that the conservative investment approach adopted by insurers may have reduced the appeal of long-term insurance savings products for consumers.
The RBI cautioned that without addressing cost structures, insurance penetration may remain constrained despite rising premium volumes.
Mis-selling grievances against life insurers rise 14% in FY25
Complaints related to mis-selling against life insurance companies increased 14.3 per cent year-on-year to 26,667 in FY25, according to the annual report of the Insurance Regulatory and Development Authority of India. The rise came even as overall grievances against life insurers declined marginally to 120,429 during the year.
The regulator flagged mis-selling as a persistent conduct risk in the life insurance sector and expressed concern over the continued rise in complaints linked to unsuitable product sales. IRDAI said insurers have been advised to carry out detailed root-cause analyses to identify systemic issues driving mis-selling, particularly across distribution channels.
The regulator has also asked insurers to strengthen internal controls by improving product suitability assessments, enhancing agent training and aligning sales incentives with long-term policyholder outcomes. Measures such as tighter monitoring of distribution practices and improved grievance redress mechanisms have been emphasised to address the issue.
IRDAI’s renewed focus on mis-selling comes amid broader regulatory efforts to improve transparency, protect policyholders and restore trust in insurance distribution, especially as the industry seeks to expand coverage and improve persistency.
GST rationalisation drives 40% surge in life insurance new business premiums in December
India’s life insurance industry recorded nearly 40 per cent year-on-year growth in new business premiums (NBP) in December, aided by the rationalisation of goods and services tax on individual life insurance policies, according to data from the Life Insurance Council.
New business premiums rose 39.5 per cent to Rs. 42,150.8 crore in December, marking the highest monthly growth recorded in FY26. State-owned Life Insurance Corporation of India led the surge, with premiums jumping 57.45 per cent to Rs. 21,293.9 crore. Private life insurers reported a 24.93 per cent increase, with premiums rising to Rs. 20,856.9 crore.
LIC’s group single premium segment grew sharply by 75.9 per cent, while individual premiums increased 27.4 per cent. Among private insurers, individual business rose 20.39 per cent and group business grew 36.35 per cent. Major players such as SBI Life, HDFC Life, ICICI Prudential Life and Max Life posted double-digit growth during the month.
Industry executives said improved affordability following the GST changes has revived demand, particularly in individual life insurance products.
Life insurers may face VNB margin pressure after GST input tax credit loss
Life insurers are expected to face pressure on profitability in the third quarter of FY26 following the loss of input tax credit (ITC) after the goods and services tax (GST) on individual life and health insurance premiums was reduced from 18 per cent to nil, analysts said. While the GST move has supported strong premium growth across life and health segments, it has also removed the ability of insurers to offset costs through ITC, directly impacting margins.
The value of new business (VNB) margin, a key profitability metric for life insurers, is likely to remain under strain during Q3FY26. Analysts noted that the impact of ITC loss could range between 175 and 350 basis points, depending on the insurer’s product mix and cost structure. However, a shift towards higher-margin non-participating and protection products, improved operating efficiencies, and renegotiation of distributor commissions are expected to partly cushion the impact.
Kotak Institutional Equities said year-on-year margin movement could vary widely, from a contraction of 300 basis points to an expansion of 100 basis points, depending on base effects. Despite margin pressures, annualised premium equivalent growth is expected to remain healthy, aided by GST-led demand and normalisation following revised surrender value norms.
LIC demerger proposed to improve efficiency, spark competition
An expert panel from the Indian Institute of Management Kozhikode has recommended splitting or unbundling Life Insurance Corporation of India to improve efficiency and competition in the life insurance sector. The proposal emerged from deliberations held by the Life and General Insurance Councils as part of efforts to achieve the goal of Insurance for All by 2047.
The report, submitted to the councils and the Insurance Regulatory and Development Authority of India, noted that LIC’s dominant position distorts competition. In FY24, LIC accounted for about 57 per cent of life insurance premiums, nearly 70 per cent of new policies issued, and over 71 per cent of assets under management. The panel said there was a prima facie case for demerger, divestment or unbundling to unlock value and attract fresh investment.
The experts suggested that the government appoint professional merchant bankers to evaluate the most efficient restructuring option. However, LIC has opposed the proposal, warning that a split could undermine public confidence in government-backed insurance and destabilise the sector. The report acknowledged LIC’s concerns, highlighting the sensitivity of any structural changes involving the state-owned insurer.
Insurers seek higher income tax relief on premiums in Budget FY27
Following the removal of GST on insurance premiums, insurers are now pressing for enhanced income tax relief for protection, health and pension products in the Union Budget for FY27. Industry participants are seeking higher deductions under both tax regimes and revisions to thresholds governing taxation of maturity proceeds.
Insurers have proposed raising the premium limit for taxing maturity proceeds of traditional life insurance policies from Rs. 5 lakh to Rs. 10 lakh. They are also seeking an increase in the tax-free premium threshold for unit-linked insurance plans (Ulips) to Rs. 5 lakh, bringing them in line with traditional products. The existing Rs. 5 lakh cap on traditional policy premiums was introduced in 2023.
Satishwar B, MD and CEO of Bandhan Life Insurance, said the GST waiver has improved affordability and demand for life insurance. He added that better tax incentives for protection and health plans could significantly expand coverage and support the government’s Insurance for All by 2047 objective. Insurers are also calling for stronger tax support for pension products to encourage long-term retirement savings and improve financial security.
Life Council panel suggests capping or staggering distributor commissions
A committee constituted by the Life Insurance Council has recommended capping distributor commissions or staggering payouts over time to reduce acquisition costs in the life insurance sector. The proposals are expected to be submitted to the Insurance Regulatory and Development Authority of India for consideration.
Currently, life insurers operate under overall expense of management (EoM) limits rather than product-specific commission caps. This framework allows insurers flexibility in setting commissions, provided they remain within prescribed aggregate thresholds. However, elevated distributor payouts have pushed up acquisition costs, increasing premium burdens on customers and drawing regulatory scrutiny.
The panel has suggested linking commission payments more closely to premium collections or deferring payouts over the policy life to align distributor incentives with long-term policy persistency. An industry source said staggered commissions or caps could be introduced as early as April to address cost pressures.
The Reserve Bank of India has also flagged high acquisition costs as a systemic concern in its Financial Stability Report, warning that persistent expense-heavy structures could hinder insurance penetration and affordability over the long term.
