Recent years have been turbulent for the insurance industry due to direct and indirect tax reforms, regulatory overhaul and other external pressures.
Illustration: Uttam Ghosh
The events cumulatively slowed growth rate to single digits from the high teens seen earlier.
With the dust settling on the measures taken to mitigate the impact of the withdrawal of input tax credit (ITC), insurers are hopeful that the firefighting is behind them and they can now shift gears and focus on growth.
They aim to build on the opportunity created by the goods and services tax (GST) rationalisation, which has made protection and health products more affordable and is expected to boost sales and improve insurance penetration.
The life insurance industry in FY25 reported new business premium (NBP) growth of 5.13 per cent, according to data from the Life Insurance Council.
In FY24, growth was even slower at 2 per cent.
In FY23, life insurers reported NBP growth of almost 18 per cent.
Non-life insurers’ premium collection grew 6.2 per cent in FY25, according to the General Insurance Council. In FY24 it grew nearly 13 per cent and a little over 16 per cent in FY23.
The industry and its regulator are working on the challenges.
“I draw strength from what Parliament has mandated: Protect policyholders’ interests and, on the other side of the coin, regulate, promote, and develop insurance in an orderly manner.
“Orderly development requires building a consensus on any reform,” said Ajay Seth, chairman of Insurance Regulatory and Development Authority of India (Irdai), at the Business Standard BFSI Insight Summit 2025 in October in Mumbai.
Seth highlighted that the sector, especially health insurance, is at an “unstable equilibrium” and life insurance is at a “low-efficiency equilibrium”.
Besides the equilibrium challenge, other sectors which manage savings of Indians are giving competition to life insurance companies.
“So, is the status quo the answer? If you want to live with a low-level equilibrium or an unstable equilibrium, then it is so.
“But does it require shocks? No. It requires an orderly transition to a better tomorrow,” Seth said.
In February 2023, the government decided to tax income from traditional insurance policies, other than unit-linked products, with annual premium of more than Rs 5 lakh to plug the arbitrage high-net-worth individuals (HNIs) were using to get tax-free returns on their high-value insurance policies through Section 10(10D).
This caused life insurers to take a hit on their margins, prompting them to adjust their product mix to mitigate the impact of the government’s measures.
Following this, in June 2024, Irdai revised the surrender value norms for the life insurance companies.
The revised norms ask life insurers to pay an enhanced special surrender value after the completion of the first policy year, provided the customer has paid one full-year premium.
This again resulted in insurers facing margin pressures and a slowdown in policy sales.
Companies were once more compelled to adopt mitigating measures to offset the impact of the regulator’s new norms.
Following the September ruling that zero-rated GST on life and health premiums (down from 18 per cent), insurers also lost the ability to claim ITC. The industry is responding by absorbing the immediate pressure on margins and rolling out measures designed to compensate for the withdrawal of the ITC benefit.
Tarun Chugh, managing director (MD) and chief executive officer (CEO) of Bajaj Life Insurance, believes there is a positive in the firefighting.
“We have gotten a lot more resilient. Even after this big ITC impact that we all had, we still are going ahead and making statements around being resilient enough to handle this.
“That is what helps the sector. This is what we have been able to put together in our DNA.
“But yes, if there are fewer shocks, it will always be good,” Chugh said in an interview with Business Standard.
“GST 2.0 is a positive step that makes insurance more affordable in India and helps improve penetration.
“So yes, I see growth accelerating again in the medium term,” said Sumit Madan, MD and CEO of Axis Max Life Insurance.
According to Amit Ganorkar, MD and CEO of Tata AIG General Insurance, the Indian insurance industry stands at a pivotal juncture, driven by strong economic fundamentals, regulatory reforms, and rising consumer awareness.
“The GST waiver on health insurance and the transition to new accounting standards are important milestones that enhance transparency, affordability, efficiency, and global comparability,” he said, adding that growing digital adoption, data-led underwriting, and simpler, need-based products will further empower customers and expand the industry’s reach.
According to Shashi Kant Dahuja, executive director of Shriram General Insurance, general insurers will be focused on the innovative and non-traditional products such as surety bonds insurance, parametric insurance among others in the next few months.
“The life insurance industry is focusing on several key areas for growth in the near future, and one of the main priorities is the expansion of term insurance which is expected to become more affordable as market awareness increases, boosting its growth potential post the GST changes,” said Alok Rungta, MD and CEO, Generali Central Life Insurance.
According to Rungta, the industry has a significant opportunity in the rural market, where growth has been stronger than in urban areas over the past few quarters.
“As disposable income in rural areas increases, there is greater potential for affordability and demand for both protection and savings products,” he said.
Despite recent pressures, the consensus within the industry is that a new, more resilient foundation has been established.
Leaders are pivoting their focus from damage mitigation to strategic growth.
