According to IRDAI’s Annual Report 2023-24, India’s insurance penetration rate remains low despite the insurance regulator’s continued efforts to advance the vision of ‘Insurance for All by 2047’. has declined to 3.7% in FY 2023-24 from 4% in the previous financial year.
Insurance penetration has already fallen from 4.2% in 2021-22 to 4% in 2022-23, raising concerns among policymakers, and this is the second consecutive year of decline.
The silver lining is that India’s insurance density has shown a modest increase from the previous year’s level of $92 to $95 in 2023-2024, according to a report tabled in Parliament last week.
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insurance density
Specifically, the density of property and casualty insurance increased from $22 to $25, while the density of life insurance remained stable at $70. This upward trend in insurance density has continued consistently from 2016 to 2017.
However, India’s performance in terms of insurance penetration and density in 2023-2024 remains much lower than the global average of 7% and $889 in 2023.
According to Sandip Goenka, CEO of ACKO Life, one of the key factors behind the decline in insurance penetration is the relatively low penetration of life insurance, especially term insurance.
“This stems from the deeply ingrained belief that financial products are primarily seen as investment tools, and that term insurance, which acts as a pure protection plan, is often unattractive because it does not provide tangible financial returns. Changing this perception requires increasing customer literacy about protection products and simplifying the provision of insurance. A consistent approach is needed, including leveraging technology to educate and engage young people. Leveraging the digital ecosystem, integrating preventive care elements, and fostering partnerships with community organizations will help improve life insurance in India. It will play an important role in reshaping the way it is perceived and adopted,” Goenka said.
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Life insurance goes down
The penetration rate of life insurance declined from 3% in 2022-23 to 2.8% in 2023-24, but the penetration rate of general insurance remained unchanged at 1%.
The life insurance industry reported a 6.06 per cent increase in premium income to reach Rs 8.3 billion in 2023-24 on strong renewal premium income, according to an IRDAI report.
Private sector life insurance companies recorded a premium growth of 15.05%, while public sector life insurance companies recorded a premium growth of 0.23%.
The recent decline in insurance penetration in India coincides with the GST Council’s recent postponement of a key decision to reduce the GST rate on insurance premiums. The current premium rate of 18% is seen as a deterrent for people considering insurance and continues to weigh on purchasing decisions..
Rationalization of GST rates and 100 per cent FDI could be a catalyst for increasing insurance penetration in the coming years, industry insiders suggest.
Handling of taxes
Industry observers believe that the decline in demand for life insurance in 2023-24 is due to changes in the tax treatment of high-value insurance in the government’s budget decision, as well as a reduction in the disposable income of the middle class due to soaring food inflation. This is attributed to the decrease.
We are also seeing a shift in investment mindset from investment-oriented life insurance products to investment trusts and capital markets.
From 2023 to 2024, life insurance companies will issue 291.77 million new policies in private businesses, of which public sector insurance companies will issue 203.93 million (69.89%) and private life insurance companies will issue 291.77 million new policies. 87.84 million (30.11%) were issued. Private sector insurance companies recorded a growth of 9.23%, while public sector insurance companies reported a decline in growth rate of 0.18%, while the insurance industry recorded a 2.48% increase in the number of new policies compared to the previous year.
According to a Swiss Re report, the Indian insurance market experienced a slowdown due to rising inflation and tax changes for high-value insurance.
The rise of the non-life insurance sector
During 2023-24, the general insurance industry underwrote a total of Rs 2,900 crore of direct premiums in India, registering a year-on-year growth of 12.76%. The contribution of public sector general insurance companies increased by 8.88% from Rs 82,891 crore in 2022-23 to Rs 90,252 crore in 2023-24.
Private insurance companies (including standalone health insurance companies) underwrote Rs 1.88 billion against Rs 1.58 billion in 2022-23.
Among the various segments of the non-life insurance business, the health insurance business is the largest with premiums of Rs 1.17 billion, accounting for 40.29% (38.02% in 2022-23) of the total premiums. The health insurance sector reported a growth of 19.50% (21.32% growth in 2022-23).
Public sector general insurance companies contributed 35.03 percent of the market share, while private sector general insurance companies contributed the remaining 64.97 percent.
