The CII-KPMG report, which was unveiled here, also said that the country is yet to traverse the path of insurance distribution through the extensive use of digital channels.
However, it suggested that this transition has to be supported by an equally significant rise in the number of intermediaries involved in the distribution of insurance.
To address the challenge of penetration, the report has suggested that insurers need to focus on redesigning the channel strategy and financial awareness of the customer and channel partners insurance landscape.
There is a need for building a billion distributor workforce to tap the under-penetrated financial distribution markets in the country, it said.
"It is good to see that, over the past few years, there has been a shift from pushing products to enhancing customer experience amongst product manufacturers," V Ganesh, chairman, CII Financial Distribution Summit and chief executive, Karvy Computershare said.
Coming from mutual fund industry, the report says that assets under management in the mutual fund industry have seen significant growth in the last few years. The growth is likely to continue over the next four to five years.
However, despite this growth, mutual fund penetration or mutual fund AUM/GDP ratio of the country is very low at 7% as compared to the US, which is at 83% and the world average of 37%, it said.
About pension fund in the country, the report said that it was still in nascent stages of maturity.
Some of the key factors impacting the growth of employee pensions in the country are litigations on contribution base, lack of portability of accumulated corpus, the disparity for self-employed, pre-retirement withdrawals, it said.
New fintech players are entering the distribution market with solid technology solutions and are taking the business away from traditional distributors. Gen Y and Gen Z users are highly influenced by these players and are starting their first investments through these distributors, it added.