India’s insurance industry is set to maintain strong premium growth over the medium term, even as insurers grapple with structural profitability challenges and rising capital requirements. In its latest sector outlook, Moody’s underlined that growth momentum is increasingly being driven by macroeconomic tailwinds, regulatory intent, and changing consumer behaviour—but cautioned that underwriting performance remains fragile.

The outlook comes against the backdrop of a steadily improving Indian macro environment. Moody’s expects India’s economy to expand by 7.3 percent in FY26, compared with 6.5 percent in FY25. This acceleration is expected to translate into higher household incomes, greater financialisation of savings, and stronger demand for risk protection products across life, health, and general insurance.

Reflecting these trends, total insurance premiums grew 17 percent year-on-year in the first eight months of FY25 to ₹10.9 trillion, a sharp step-up from the 7 percent growth recorded in FY24. Importantly, the expansion has not been concentrated in a single segment, pointing to broad-based demand rather than a short-term product cycle.

Life insurance new business premiums rose 20 percent during the period, while health insurance premiums increased 14 percent. Moody’s attributed this to heightened risk awareness following the pandemic, improved product accessibility, and deeper digital penetration across urban and semi-urban markets.

The growing reliance on digital channels both direct-to-consumer platforms and tech-enabled intermediaries has significantly lowered distribution frictions. This aligns closely with the regulator’s long-term objective of achieving “Insurance for All” by 2047, by expanding reach beyond traditionally underserved segments.

Despite this growth, insurance penetration remains structurally low. Premiums accounted for only 3.7 percent of GDP in FY24, far below levels seen in developed markets such as the UK (11.8 percent) and the US (12.1 percent). Moody’s sees this gap as evidence of long-term headroom rather than near-term saturation risk.

While headline growth is strong, the industry’s underlying profitability remains under pressure. A key constraint has been weak pricing discipline, particularly in the non-life segment. Moody’s highlighted that state-owned insurers have historically prioritised market share over underwriting profitability, depressing industry-wide pricing.

Although public sector insurers’ share of total premiums has declined to 31 percent from over 40 percent before FY20, they still accounted for 61 percent of underwriting losses in FY24. This imbalance continues to weigh on sector returns and distorts competitive behaviour.

The government’s ongoing efforts to reform state-owned insurers through recapitalisation, consolidation, potential privatisation, and earlier minority stake dilution in LIC are viewed as credit positive. Moody’s noted that improved underwriting discipline among public insurers would support healthier pricing across the market. However, it cautioned that timelines remain uncertain, given past operational and legislative delays.

Claims inflation remains another major challenge. In FY24, claims rose 6.4 percent in life insurance and 6.6 percent in non-life insurance. As a result, the industry stayed loss-making at the underwriting level, despite reporting an after-tax profit of $8.1 billion.

Moody’s emphasised that without sustained pricing improvement, insurers will find it difficult to absorb claims inflation, particularly as business volumes expand. This has direct implications for solvency buffers and capital adequacy, especially for fast-growing players.

A notable policy support highlighted by Moody’s is the government’s September 2025 decision to exempt individual life and health insurance policies from GST. The move has already improved affordability and accelerated year-on-year growth in retail premiums during FY25.

However, the benefit is not unqualified. Moody’s warned that the removal of GST also eliminates input tax credits, partially offsetting the positive impact on insurer margins. The net effect, therefore, is likely to be more favourable for penetration than for profitability.