The Indian insurance sector has transformed significantly over the past few decades and has been contributing significantly to the economic development of the country. This sector is transformed from being dominated by a single player, Life Insurance Corporation (LIC) to becoming a sector comprising various players offering diverse range of products tailored to meet the needs of the customers. The transformation has been fuelled by several factors such as economic development, technological advancement, demographic shifts, and increased consumer awareness about financial security through insurance, especially post COVID-19 pandemic. The insurance penetration stood at 4.2% of the GDP in 2022, which included 3.2% from life insurance and 1.0% from non-life (general) insurance, indicating a vital position the sector holds in the financial system of the country. The dominance of LIC in India’s life insurance segment and the robust growth witnessed in the general insurance segment has pivoted the insurance sector towards expansion in the near future.

Evolution of the Indian insurance sector

1938-72: Formation of LIC

The period before 1938 was marked to be a volatile phase for India’s insurance sector, as it functioned as an unregulated sector. India’s insurance sector got regulated after the formation of the Insurance Act of 1938, as the government established stringent measures to control the insurance business in India. Post-independence, in 1956, various insurance companies (approx. 245 companies) were merged to form a single entity, Life India Corporation (LIC) as part of the nationalisation act. The main objectives of this move were to increase the penetration of insurance sector in India and protect the policy holders from mismanagement. The general insurance sector was nationalised in 1972 to form the General Insurance Corporation of India (GIC), with the objective of controlling, supervising, and carrying on the business of general insurance in India.

1993-99: Introduction of IRDAI

In 1993, the then- governor of the Reserve Bank of India (RBI), Mr. R.N. Malhotra, set up a committee under his leadership to propose recommendations for reforms for India’s insurance sector. The main purpose of this committee was to open the insurance sector to private players in the market. In 1999, Insurance Regulatory and Development Authority of India (IRDAI) was formed to regulate and promote the insurance sector while ensuring financial security. The formation of IRDAI made it the statutory regulatory body for India’s insurance sector, ending the duopoly of LIC and GIC.

2000-17: Growing private players and introduction of government policies

Post-liberalisation, the insurance industry recorded significant foreign investment growth as the number of private players increased in the Indian insurance sector. In December 2014, the government approved the ordinance of increasing the FDI limit in the insurance sector from 26% to 49%. It was estimated that this would attract investments of US$ 7-8 billion. Post 2015, the government has been majorly focused on introducing various insurance schemes that are aimed at the welfare of the citizens. In 2015, the government introduced Pradhan Mantri Suraksha Bima Yojna (PMSBY) and Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY).

2017-till date: Rise of investment and COVID-19 pandemic

With various reforms introduced by the government over the past decades, along with the rise of private players in the insurance sector, there has been a notable surge in the amount of money raised by insurance companies. In 2017, it was estimated that insurance companies in India raised more than US$ 6 billion from public issues. The instability caused by the COVID-19 pandemic highlighted the necessity for consumers to invest in insurance products which would increase financial security, and one of them being life insurance. In 2021, The Insurance Amendment Bill was passed, which raised the FDI limits via the automatic route from 49% to 74%, thereby enabling more investments. In 2022, India’s largest insurance company, LIC, decided to go public and raised Rs. 21,000 crore (US$ 2.51 billion), making the largest IPO in India and accounting for a massive 39% of the total public issues (by value) in FY23.

Segmentation of insurance sector in India

Key statistics of the insurance sector

Global scenario

The insurance sector around the globe is known to be the backbone of restoring and maintaining financial stability of a country during uncertain times. Insurance companies have been a major contributor towards strengthening of capital markets as they channelise majority of their investments (>50%) in the debt and equity market. The insurance sector has played a key role in the growth of the Indian economy, considering the large investments in the economy.

Source: Swiss Re Sigma Report

As noted from the chart above, the US remains the largest insurance market in the world, followed by China and the UK. Currently, India is the 10th-largest insurance market in the world. India’s total premium volume in 2022 stood at US$ 131 billion, up from US$ 123 billion, a surge of 6.5% YoY. As per Swiss Re’s report, India is projected to become the sixth-largest insurance market in 2032, surpassing Italy, Canada, South Korea, and Germany.

Despite the challenges faced by the country due to the COVID-19 pandemic, the Russia-Ukraine war and the climate crisis, the insurance sector in India has grown at a robust rate of 10.3% in FY22 as compared with a modest growth rate of 7.9% in 2021. This growth has been possible through the agility that the industry has displayed by adopting to the latest digitalisation practices across its operations, robust risk management fundamentals and ‘customer-first’ approach.

Trend in insurance penetration and density in India over the years

Insurance penetration and density are the top two metrics used to assess the condition of the insurance sector in any economy. Insurance penetration is calculated as a percentage of insurance premiums to that of the GDP of the country, while insurance density is the ratio of premiums to population (per capita premium).

Source: Swiss Re Sigma Report

As shown in the above chart, the insurance penetration in India has been in a growing momentum from 3.4% in FY16 to 4.0% in FY23. This includes the life insurance sector, which comprises the majority of this penetration, growing from 2.7% in FY16 to 3.0% in FY23. Similarly, the non-life insurance sector’s insurance penetration rose from 0.7% in FY16 to 1.0% in FY23. The insurance penetration declined from the peak of 4.2% recorded in FY22 to 4.0% in FY23, but it was due to relatively higher growth in the country’s GDP while insurance industry’s health indicators remained robust. Going forward, premiums from India’s life insurance sector are estimated to reach Rs. 24 lakh crore (US$ 317.98 billion) by 2031 from Rs. 7.83 lakh crore (US$ 93.74 billion) in 2022-2023.

Source: Swiss Re Sigma Report

Insurance density has been rising at a steady pace for both, the life and non-life insurance sectors in India. For the life insurance sectors, the density rose from US$ 44 in FY15 to US$ 70 in FY23. And for the non-life insurance sectors, the density has doubled from US$ 11 in FY15 to US$ 22 in FY23. The growing awareness of the necessity of insurance has been the main factor for the growth in insurance density.

Growth of Life insurance sector

The life insurance sector in India holds ~70% of the market share relative to the entire insurance sector in India and has displayed a considerable amount of growth right from the year 2000, when the insurance sector was liberalised. The liberalisation helped in the introduction of private players in the industry and therefore, increasing competition from companies such as ICICI Prudential, HDFC Life, and SBI life. This heightened competition helped diversify the market, introduce innovative and wide range of products and enhanced customer reach and satisfaction.

As per CII, India ranks as the fifth-largest life insurance market globally that has been growing at 32-34% each year. The large life insurance market comprises 24 companies. Among these, LIC holds 60% of the market share in terms of premiums and is the sole public sector company. As of FY23, the life insurance penetration in India stood at 3.0% of the GDP of India, reflecting a steady rise from 2.7% in FY16. Similarly, in terms of insurance density, life insurance density rose from US$ 44 in FY15 to US$ 70 in FY23.

Life insurance premiums comprise two broad categories, viz; ‘New business premiums’ and ‘Renewal premiums.’ New business premiums have been growing at a steady pace from US$ 30.1 billion in FY18 to US$ 45 billion in FY23. On a similar trend, renewable premiums have shown a modest growth as well. It stood at US$ 49.5 billion in FY23, rising from US$ 41.0 billion in FY18.

Source: Life Insurance Council

The life insurance market in India has shown consistent premium growth over the past years. In 2022-23, the life insurance sector recorded income from premiums of Rs. 7.83 lakh crore (US$ 93.74 billion), growth of ~13% YoY. The private sector life insurance players recorded a total premium growth of 16.34% in 2022-23, while LIC, the sole public sector life insurer, recorded a growth of 10.90%.

LIC currently holds a 59% share in the total premium market share in India’s life insurance sector. In the April-January period of FY24, LIC recorded a 137.16% YoY increase in group annual renewable premiums. The premiums surged from Rs. 626.90 crore (US$ 75.3 million) in FY23 to Rs. 1,486.76 crore (US$ 178 million) in FY24.

Similarly, other major players such as HDFC Standard Life (8%), SBI Life Insurance (10%), ICICI Prudential Life Insurance (5%), have been contributing significantly to the life insurance sector.

Growth of non-life (general) insurance sector

The general insurance sector of India comprises non-life insurance products such as motor, health, property, and marine insurance. This sector has seen robust growth in the past decades. India is currently the fourth-largest general insurance market in Asia and the 14th-largest globally. The general insurance sector’s density grew two times from US$ 11 in FY15 to US$ 22 in FY23, but its penetration still lags at 1.0% the GDP as of FY23, signalling a massive upside potential as compared with the global standards. The general insurance business in India has witnessed an impressive growth over the past two decades, which has been fuelled by the increased participation of private players, improvement in distribution capabilities and operational efficiencies.

During 2022-23, the Indian non-life insurance industry underwrote a total direct premium of Rs. 2.57 lakh crore (US$ 30.77 billion) registering growth of 16.40% from 2021. Out of which, Rs. 1.58 lakh crore (US$ 18.92 billion) was underwritten by 27 private sector insurers (including standalone health insurers) compared with Rs. 1.30 lakh crore (US$ 15.56 billion) in 2021-22. The total premium underwritten outside India by the three public sector insurers stood at Rs. 3,434 crore (US$ 411.11 million) in 2022-23 as against Rs. 3,303 crore (US$ 395.43 million) in 2021-22 registering growth of 3.96%.

Source: IRDAI

The number of non-life insurance policies more than doubled over the past few years. The number of policies issued in India stood at 116.7 million in FY15 and increased to 301.8 million in FY23, registering a CAGR of 13%. This growth is due to the growing demand in a number of associated sectors, such as automobile and healthcare industries. The public sector general insurers held a market share of 38.42%, while the general insurers in private sector put up the remaining 61.58%.

Segment classification of non-life insurance based on the gross direct premiums in FY23

Source: IRDAI

 With a contribution of 38.02% of the total premium in 2022-23 (36.48% in 2021-22), the health insurance business is the largest segment in the general insurance sector. The health insurance segment reported a growth of 21.32% in FY23, with the premium growing to Rs. 97,633 crore (US$ 11.69 billion) from Rs. 80,502 crore (US$ 9.64 billion) in FY22. The motor segment witnessed a yoy growth of 15.40% with premium collection amounted to Rs. 81,280 crore (US$ 9.73 billion) in 2022-23 from Rs. 70,433 crore (US$ 8.43 billion) in 2021-22.

However, the share of the motor segment in the total premium slightly decreased to 31.64% in 2022-23 from 31.91% in the previous year. In 2022-23, the premium collection in the fire segment increased by 11.07% to Rs. 23,936 crore (US$ 2.87 billion) and in the marine segment increased by 21.38% to Rs. 5,059 crore (US$ 0.61 billion).

The number of private players in India’s general insurance business has grown. The private sector currently holds a 54% share of the general insurance business while the public sector holds 32%. Standalone health insurers are 10.2% of the total insurers, and specialised insurers comprises 4.3%.

There are currently 34 non-life insurers in India, of which the major players in terms of gross direct premium collected are New India (13%), ICICI Lombard (9%), Bajaj Allianz (7%), United India (7%), Oriental Insurance (6%) and HDFC Ergo (6%).       

Road ahead

The insurance sector in India has played a vital role towards the steadiness and growth of the Indian economy. It has gone through significant transformation over the past few decades, driven by regulatory reforms. The adaptation of the latest technologies and the rising customer awareness (especially after COVID-19 pandemic) has established a strong base for the industry to flourish in the near future. As per IRDAI, the insurance market in India is expected to touch US$ 222 billion by 2026. Additionally, IRDAI has adopted a new mission of ‘Insurance for All’ 2047, that is expected to increase the insurance penetration, while ensuring the ease of doing business for the insurers. As per Swiss Re, the insurance sector in India is projected to grow the fastest among the G20 countries, with the total premium projected to grow at an average of 7.1% as compared with the global average of 2.4% between 2024-28. Despite the various challenges that the industry faces, they present an opportunity for the various stakeholders in the sector to innovate and expand the sector further.