India’s insurance penetration fell to 3.7 per cent in 2023-24 from 4 per cent in the previous fiscal, despite the insurance regulator’s sustained efforts to advance the ‘Insurance for All by 2047’ vision, IRDAI’s Annual Report for 2023-24 showed.

The drop marks a second consecutive year of decline, as insurance penetration had already fallen to 4 per cent in 2022-23 from 4.2 per cent in 2021-22, raising concerns for policymakers.

The silver lining is that India’s insurance density showed a modest rise to $95 in 2023-24 from a level of $92 in previous year, the report tabled this past week in Parliament showed. 

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Insurance density

Specifically, non-life insurance density increased from $22 to $25, while life insurance density remained stable at $70. This upward trend in insurance density has been consistent since 2016-17.

However, India’s performance on insurance penetration and density in 2023-24 is still much lower than the overall global reading of 7 per cent and $889, respectively, in 2023.

According to Sandip Goenka, CEO, ACKO Life, one of the key factors contributing to the decline in insurance penetration is the relatively low uptake of life insurance, particularly term plans.

“This stems from a deeply ingrained mindset where financial products are viewed primarily as investment tools and term insurance, which serves as a pure protection plan, often lacks appeal because it doesn’t offer tangible financial returns. Changing this perception requires consistent efforts like strengthening customer literacy around protection products, simplifying insurance offerings, and leveraging technology to engage with younger demographics. Leveraging digital ecosystems, integrating preventive care elements, and fostering partnerships with community organisations will play a vital role in reshaping how life insurance is perceived and adopted in India,” Goenka said.

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Life insurance down 

While life insurance penetration declined from 3 per cent in 2022-23 to 2.8 per cent in 2023-24, general insurance penetration remained unchanged at 1 per cent. 

The life insurance industry reported a 6.06 per cent growth in premium income in 2023-24 to ₹8.30 lakh crore, driven by robust renewal premium income, IRDAI report showed.

The private sector life insurers have clocked a growth of 15.05 per cent in premium, while the public sector life insurer recorded a growth of 0.23 per cent in premium.

The latest decline in India’s insurance penetration comes at a time when the GST Council has recently deferred a critical decision to reduce the GST rate on insurance premiums. The current rate of 18 per cent, viewed as a deterrent for citizens considering insurance, continues to weigh on buying decisions. 

Rationalisation of GST rate and 100 per cent FDI could become a booster dose for improved insurance penetration in coming years, suggest industry observers. 

Tax Treatment

Industry observers attribute the drop in life insurance demand in 2023-24 to the government’s budget decision altering the tax treatment of high-premium policies, coupled with reduced disposable incomes among the middle class due to soaring food inflation.

Also there has been a shift in investment mindset away from investment oriented life insurance products to mutual funds and capital markets.

During 2023-24, life insurers issued 291.77 lakh new policies under Individual Business, out of which the public sector Insurer issued 203.93 lakh policies (69.89 per cent) and the private life insurers issued 87.84 lakh policies (30.11 per cent). While the private sector insurers registered a growth of 9.23 per cent, public sector insurers reported a de-growth by 0.18 per cent and the industry registered a growth of 2.48 per cent in the number of new policies issued against their previous year.

As per a Swiss Re report, the Indian insurance market experienced a slowdown due to rising inflation and change in tax norms for high-ticket policies. 

Non-Life Sector Sizzles 

During 2023-24, the non-life insurance industry underwrote a total direct premium of ₹2.90 lakh crore in India registering a growth of 12.76 per cent from the previous year. The contribution of public sector general insurers increased by 8.88 per cent from ₹82,891 crore in 2022-23 to ₹90,252 crore in 2023-24. 

Private sector insurers (including standalone health insurers) have underwritten ₹1.88 lakh crore as against ₹1.58 lakh crore in 2022-23.

Among various segments under non-life insurance business, health insurance business at ₹ 1.17 lakh crore premium is the largest segment with a contribution of 40.29 per cent (38.02 per cent in 2022-23) of the total premium. The health insurance segment reported growth of 19.50 per cent (21.32 per cent growth in 2022-23). 

The public sector general insurers together contributed to 35.03 per cent of the market share, while the private sector general insurers contributed to the remaining 64.97 per cent.