Insurance industry feels the blues as growth slows amid structural issues

Growth has slowed significantly in FY25 as both life and non-life segment report single digit growth, partly because of changes in reporting norms, as well as lower credit by NBFCs and MFIs

Regulatory disruptions, unfavorable economic conditions, minimal innovation in products and distribution, and unaffordable premiums have collectively led to the insurance industry reporting only single-digit premium growth in the recently concluded financial year (FY25). To make matters worse, the outlook for the current financial year remains equally insipid.

 

The non-life insurance industry recorded a premium growth of just 6.2 per cent in FY25 — its lowest in the past three financial years. This compares to a 13 per cent year-on-year (YoY) growth in FY24 and 16.3 per cent YoY growth in FY23.

 

Similarly, the life insurance segment reported a 5.71 per cent year YoY growth in new business premiums (NBP) during April to February (11MFY25). The data for March is yet to be released by the insurance regulator. In comparison, FY24 was an even weaker year for the life segment, with a paltry 2 per cent YoY growth in NBP—primarily due to the underperformance of the state-owned Life Insurance Corporation (LIC). By contrast, the segment had reported a robust 18 per cent YoY growth in FY23.

 

“The industry growth in financial year 2025 was impacted due to the one-by-N accounting norm and lower growth in the health benefit segment attributable to lower disbursement of credit by NBFCs and MFIs”, said Sanjeev Mantri, managind director and chief executive officer of ICICI Lombard General Insurance, in a post earnings analyst call.

 

In October last year, the insurance regulator revised the format of reporting premium figures; under the new system, non-life insurance companies were asked to report long-term premiums on the basis of 1/N where N is the number of days of the policy.

 

According to industry insiders, the premium growth for the non-life insurance sector was impacted in FY25 due to economic slowdown, slower vehicle sales, changes in the accounting norms by the regulator, and aggressive pricing by companies, especially in the fire segment.

 

“The general insurance industry, which had been witnessing a healthy growth in teens in H1FY25, has seen some moderation in growth in the third and fourth quarters.  When we talk about growth in general insurance industry, we need to understand that the growth in penetration is much higher than reflected in premium terms, simply because premium rates have either declined, been stagnant or at best grown marginally- in lines as diverse as crop, term, motor and health”, said Anup Rau, MD & CEO, Future Generali India Insurance.

 

As far as the life segment is concerned, one of the biggest disruptors in FY25 was the insurance regulator’s revised surrender value norms. The other issue has been the underperformance of LIC, which has (till February) grown by just 2 per cent while the private players have reported double digit growth.

 

The Insurance Regulatory & Development Authority of India (Irdai) revised the surrender value norms which were effective from October 1, 2024 whereby the life insurance companies have to pay higher special surrender value (SSV) to the policyholders on completion of the first policy year if they have paid the full year premium for a year. Earlier, the companies did not have to pay customers who surrendered their policies at the end of the first year.

 

The companies had to launch all their products as per the new norms by December 31, 2024. The revised surrender guidelines impacted the profitability margins of the life insurers. In order to mitigate it and improve the persistency levels, the companies have undertaken multiple strategies including redesigning products and commission structures, which resulted in slower growth in premiums in the second half of FY25.

 

Additionally, with market conditions turning volatile in the second half of the year, life insurers—who had been relying on the sale of unit-linked plans to boost premiums—took a hit and were compelled to diversify their product offerings.

 

After hitting record highs of 26,277 end-September, the benchmark Nifty 50 index fell as much as 17 per cent amid sustained selling by foreign investors, resurgence in the China market, disappointing corporate earnings and global uncertainties triggered by US tariffs. The broader market mid- and small-cap indices dropped more than 20 per cent. The Nifty has rebounded 10 per cent from the lows but still trades close to 10 per cent below its lifetime highs.

 

According to an industry insider, who did not wish to be quoted, the underperformance of the life insurance sector can be attributed to several factors: the removal of tax benefits under the new tax regime, weak performance by LIC, revised surrender value norms, and sluggish growth in bancassurance channels—partly due to concerns over mis-selling through this distribution model.