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What is the story about?
The Economic Survey 2025–26 has warned that high distribution and acquisition costs are structurally constraining the growth of India’s insurance sector, preventing wider coverage despite steady increases in premium collections and insurance density.
The Survey notes that while the insurance industry continues to expand and deepen revenue from existing customers, insurance penetration declined to 3.7% in FY25, even as insurance density rose to $97, highlighting a widening gap between coverage depth and breadth
According to the Survey, escalating acquisition and administrative expenses across both life and non-life segments have pushed up operating costs.
Despite increased digital adoption, insurers remain heavily dependent on costly intermediary-led distribution networks, resulting in a significant share of premiums being absorbed by distribution overheads rather than risk coverage
The Survey describes this cost structure as a “high-cost, low-penetration” equilibrium, arguing that premium growth has failed to keep pace with nominal GDP due to rigid cost frameworks.
This has eroded the sector’s relative economic size and limited its ability to extend coverage to the so-called “missing middle”—households and enterprises that remain uninsured or underinsured.
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It adds that rising acquisition costs are not merely an operational issue but a structural constraint that distorts incentives, weakens affordability, and limits inclusion. The Survey warns that unless insurers rationalise distribution expenses, insurance products will remain expensive for large sections of the population, undermining long-term sectoral sustainability.
The Survey also flags financial risks from the current cost model. It notes that private life insurers have seen profit margins stagnate despite topline growth, while non-life insurers face high combined ratios, increasing reliance on investment income to subsidise underwriting losses. This exposure, it says, makes insurers more vulnerable to capital market volatility.
While acknowledging the sector’s strengths—including strong solvency margins, a large distributor network of over 83 lakh intermediaries, and growing assets under management—the Survey stresses that digitisation of distribution and rationalisation of acquisition costs are essential to restore value for policyholders and reverse the decline in penetration.
The Survey adds that lowering overall costs and distribution outgoes is the single most critical lever to transition the insurance industry from constrained growth to a more inclusive, resilient and affordable risk-protection system, aligned with the goal of universal insurance coverage.
Catch LIVE updates on Economic Survey here
The Survey notes that while the insurance industry continues to expand and deepen revenue from existing customers, insurance penetration declined to 3.7% in FY25, even as insurance density rose to $97, highlighting a widening gap between coverage depth and breadth
According to the Survey, escalating acquisition and administrative expenses across both life and non-life segments have pushed up operating costs.
Despite increased digital adoption, insurers remain heavily dependent on costly intermediary-led distribution networks, resulting in a significant share of premiums being absorbed by distribution overheads rather than risk coverage
The Survey describes this cost structure as a “high-cost, low-penetration” equilibrium, arguing that premium growth has failed to keep pace with nominal GDP due to rigid cost frameworks.
This has eroded the sector’s relative economic size and limited its ability to extend coverage to the so-called “missing middle”—households and enterprises that remain uninsured or underinsured.
ALSO READ | Economic Survey flags surge in gold and silver as signal of global risk
It adds that rising acquisition costs are not merely an operational issue but a structural constraint that distorts incentives, weakens affordability, and limits inclusion. The Survey warns that unless insurers rationalise distribution expenses, insurance products will remain expensive for large sections of the population, undermining long-term sectoral sustainability.
The Survey also flags financial risks from the current cost model. It notes that private life insurers have seen profit margins stagnate despite topline growth, while non-life insurers face high combined ratios, increasing reliance on investment income to subsidise underwriting losses. This exposure, it says, makes insurers more vulnerable to capital market volatility.
While acknowledging the sector’s strengths—including strong solvency margins, a large distributor network of over 83 lakh intermediaries, and growing assets under management—the Survey stresses that digitisation of distribution and rationalisation of acquisition costs are essential to restore value for policyholders and reverse the decline in penetration.
The Survey adds that lowering overall costs and distribution outgoes is the single most critical lever to transition the insurance industry from constrained growth to a more inclusive, resilient and affordable risk-protection system, aligned with the goal of universal insurance coverage.
Catch LIVE updates on Economic Survey here
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