Life insurance policy surrenders outpaced maturity payouts: RBI report

Reflects policyholder dissatisfaction, product mis-selling, among others

Surrenders and withdrawals of life insurance policies rose sharply in 2025-26 (FY26), accounting for a larger share of total pay-outs than maturity benefits, the Reserve Bank of India (RBI) said in its Financial Stability Report (FSR) released on Tuesday.

 

The RBI said persistently elevated surrender rates could signal policyholder dissatisfaction, product mis-selling or competitive pressure from alternative financial instruments.

 

According to the report, surrenders and withdrawals accounted for 38.3 per cent of total life insurance pay-outs in FY26, compared with 36.9 per cent for maturity benefits. Death claims normalised to 8.1 per cent.

 

“The near parity between surrenders and maturity pay-outs indicates that policyholders are increasingly exiting policies prematurely. This shift has direct implications for asset-liability management (ALM), as early exits disrupt the long-duration assumptions underpinning life insurance investment strategies and can force asset liquidation ahead of schedule,” the RBI said.

 

 

The report also flagged high distribution costs as a risk for insurers. Elevated acquisition costs are compressing underwriting margins for general insurers while increasing the risk of acquisition-cost-driven mis-selling by life insurers.

 

For private life insurers, the commission ratio nearly doubled from 2021-22 to 9.1 per cent in FY26, while operating expense ratios remained broadly stable. In the general insurance segment, private insurers' commission expense ratio rose sharply to 21 per cent, significantly outpacing premium growth. Public-sector general insurers' commission ratio increased marginally to 9.9 per cent over the past five years.

 

Life insurance grievances declined from a peak of over 1,50,000 in 2021-22 to 1,20,000 in FY26, suggesting improvements in market conduct, product suitability and post-sale service, the RBI said.

 

In contrast, grievances in the general insurance sector nearly trebled to 1,78,000 in FY26. The RBI said the sharp rise pointed to weaknesses in claims management, service quality and product communication, warning that unresolved conduct risks could erode policyholder trust, reduce renewal rates and eventually become a financial stability concern.