Big part of health insurance is a pull product, not push: Irdai's Ajay Seth

Insurance in the country needs transformative reforms to expand 1.5-2 times the rate of growth of the Indian economy over the next 10-15 years, with a faster settlement of claims, greater transparency, and wider effective coverage the key to achieving this goal, Ajay Seth, chairman, Insurance Regulatory & Development Authority of India (Irdai), said in a fireside chat at the Business Standard BFSI Insight Summit 2026. Edited excerpts:

In the previous century Life Insurance Corporation (LIC) and other public-sector insurance companies served reasonably well. After the sector opened up 27 years ago, the sector has still done reasonably well. The first comprehensive set of reforms was introduced in 2015. More recently, the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025, has set the bar even higher and is looking towards the future. This does not require an incremental change but a transformative change. If India is growing at 8 per cent, the insurance sector needs to grow 1.5 times or perhaps two times for the next 10-15 years.

There is large, unmet demand (for insurance) in India. I would highlight three things that are necessary to achieve this growth. The first is claims management and the claims experience. Claims should be friendly, fair and faster. The claims experience should work like clockwork. This is particularly relevant to general insurance. That is an area on which the authority intends to focus in the coming months. The second is transparency, because transparency builds trust. There are too many products in the market. Life insurance has close to 1,500 products, while health insurance has nearly 1,000. Information on the effective cover a policyholder receives and the returns generated on the savings pool is not available in an easily understandable form.

The third is the digital journey. While the role of intermediaries will continue to play an important role, a large section of the public will be comfortable purchasing insurance digitally. We need to learn from the banking sector and capital markets. We should identify the practices that have worked in these sectors and adopt them in insurance. I am confident that growing at 1.5-2 times the rate of the economy is doable and needed in the economy.

We have to be ambitious. An 8 per cent growth rate refers to real economic growth. If we talk about nominal growth, life insurance has been growing at around 10 per cent, which is broadly in line with the nominal growth rate of the economy. General insurance has been growing at approximately 1.3 times the rate of the economy, with health insurance being the largest driver.

However, health insurance is also experiencing an uneasy and unstable equilibrium. Maximum customer dissatisfaction is coming from this segment. We need to get these aspects right for the sector to achieve the desired growth.

There are two aspects to consider. It is not merely a question of affordability but also of quality. We are serving the top 10-15 per cent of the population reasonably well. However, expanding coverage from the top 15 per cent to the top 50 per cent will require a transformative change in the way we operate.

I would suggest that we have to change our lens. Penetration is the shareholder’s lens. It measures the size of the insurance market as a percentage of the economy. From an economic perspective, we should instead examine how many lives and economic entities are covered, what effective cover they receive, and how effective that cover is for every rupee spent. Instead of focusing only on penetration and the insurance density, which are the metrics the industry normally follows, we should track the number of lives covered and the effectiveness of cover provided for every rupee spent. That is the kind of discourse we should have and the lens we should use.

In the first 15 years after the sector was opened up, 74 per cent of the money came into life insurance. Between 2015, when the FDI limit was increased to 49 per cent, and the subsequent period, around 60 per cent of the money came into general insurance. This indicates that when a sector is growing well and the government opens it up while providing policy certainty, more capital flows into it. The subsequent opening up of the sector to 100 per cent FDI was another such signal.

However, there is an important distinction between investment in insurance companies and investment in distribution. When money comes into an insurance company, a significant portion generally goes towards strengthening the insurer’s balance sheet. In contrast, more than 85 per cent of the money that has come into the distribution sector has gone towards buying out existing owners rather than strengthening the distributor’s balance sheet. That is the difference in how FDI operates across the two segments.

Bima Sugam is not yet operational. I had expected it to become operational six months ago. The sooner it becomes operational, the better. The first product we expect to be available on the platform is motor insurance. Certain changes to the regulatory framework are required in view of some court judgments. I expect the first product to be launched in approximately a month and a half. Bima Sugam is intended to be a neutral platform where customers can compare prices, understand simple products, and purchase insurance themselves at a lower cost than through other channels. One of the mandates we have set is that the fee charged by the Bima Sugam channel should not exceed 5 per cent of the premium value.

When I appeared here last year, I had promised to keep an open mind, generate discussion based on data and analytics, and attempt to build a consensus on the reforms required for the sector and the economy. I have reiterated that commitment on this platform.

The discussion paper represents some progress in generating a discussion on the transformative role of the insurance sector and the changes it requires. It does recognise this role, but concerns have been raised about the proposed changes.

To address your specific question, a significant part of health insurance is a pull product rather than a push product. People want to buy health insurance because of rising costs of health care. Selling health insurance for the first time can be difficult. However, once a family has decided to purchase a policy, it will generally renew it the following year unless it faces a significant economic constraint.

Therefore, the effort required to secure a renewal is lower than that required to make the initial sale.

The consultation paper proposes a somewhat higher commission for the first sale, followed by a lower commission for renewals. The levels proposed can be debated, including whether the suggested renewal commission should be higher.

For an agent, the commission is suggested at 20 per cent. The average commission in the sector is around 24 per cent, including new business and renewals. If that 24 per cent is spent on acquiring business, the amount left in the risk pool after administrative expenses becomes relatively small. This can put upward pressure on premiums. Therefore, the objective is to bring the average commission down from around 24 per cent to perhaps 20 per cent, or somewhere in the range of 15-20 per cent.

On portability, the current regulations do not provide for commissions. However, in practice, a ported policy is treated as if it were a new policy. The consultation paper proposes that portability should attract the same commission as a renewal.

The data for 2024-25 shows that 60 per cent of porting activity took place among just three insurers. At the same time, those three insurers also accounted for 20 per cent of the policies ported out.

If customers were entirely satisfied with the quality of their existing insurers, we would not expect so many of them to leave. The lesson is that commissions can influence customer behaviour when policies are moved from one insurer to another. To add another data point, 90 per cent of all porting activity took place in just seven insurers in 2024-25.

We have been gathering the concerns being raised, analysing them and deciding on the way forward. Reforms of this nature have to be built on consensus. They cannot simply involve writing another set of regulations. That is the process currently under way. We are reaching out to people across the industry, including those in the distribution sector, to build that consensus.

On the question of customer choice, transparency is equally important. At present, customers do not have reliable information on the claims experience offered by different insurers.

One of the next areas of work for the authority will be improving the information available on claims experience.

Those are mature markets. In life insurance, the number of new policies being issued every year is less than 30 million. The number of policies has also not increased because the number of surrenders and maturities broadly offsets new policy issuances. In retail health insurance, the data is readily available. The number of people covered may have increased from around 12 million a decade ago to about 30 million today. That demonstrates growth. This is what we should track: How many people are covered and whether they receive effective cover. Government-sponsored social insurance schemes, such as the Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) and the Pradhan Mantri Suraksha Bima Yojana (PMSBY), have performed reasonably well. Today, approximately 130 million people have PMJJBY cover. Under the PMSBY, coverage is 250 million-300 million, with some annual variation. These schemes are working well, largely because public-sector banks and some private insurers have taken the responsibility for implementing them. There is also a large section of the population with family incomes of ₹50,000 or ₹1 lakh a month. There is a market demand for simple products tailored to these income levels. We need to develop products suited to different income segments.

There are. Insurance requires capital and knowledge. In the distribution space, effort is the brain power. It does not require capital on the balance sheet. If capital is flowing into the distribution sector mainly to finance buyouts, rather than to expand businesses, it is a signal worth examining. We need to study the data and understand what lessons can be drawn from it. 

Online aggregators and digital platforms play a significant role and offer a useful model for the sector’s digital journey. They allow customers to compare products and make informed decisions. For this model to work effectively, products must be simplified so that customers can compare them and make decisions easily. At the same time, a platform that tries to do too many things and fill too many gaps in the market can lose focus. The primary objective of a digital platform should be to serve policyholders by helping them identify a suitable product at the lowest price. However, some digital platforms also want to operate as physical distribution channels. They have expanded their presence. That is a dynamic different from a digital platform. Similarly, the policyholder should be the primary customer on a digital platform. But some platforms have also introduced, or have been open to introducing dynamic pricing.

Insurers are competing to provide policies, and there should not be an opportunity for dynamic pricing on a digital platform that undermines the customer’s ability to compare products transparently. When a platform tries to do too many things, its primary objective and customer focus can become diluted. Another issue is collecting personal information before showing a price. The basic principle of a digital platform should be that customers can compare prices without having to disclose personal details. Several platforms ask customers to provide their mobile numbers so that they can be contacted later. They may also ask customers to register their preferences to avoid unsolicited calls, in line with the Department of Telecommunications’ requirements. That is not how a digital comparison platform should operate. Digital platforms are a good model, but when they try to do too many things, their focus becomes diluted. There is a need to establish appropriate guardrails. The question of commission levels follows from these broader considerations.

That is not the intent. The most critical part of the discussion paper is deregulating the distribution space. First, the capital required for somebody to become a broker has been brought down to ₹75 lakh from ₹10 lakh. Second, more people in smaller towns can become brokers. Business correspondents can also sell insurance of any variety.