Insurance penetration reflects India’s household risks: India’s insurance industry needs to grow much faster than the economy, but higher premium collections alone will not make households financially secure. Insurance Regulatory and Development Authority of India (IRDAI) chairman Ajay Seth has called for the industry to expand at 1.5 to 2 times the economy’s growth rate over the next 10–15 years. Speaking at the Business Standard BFSI Insight Summit this week, he also emphasised better claims management, greater product transparency and lower distribution costs. These priorities recognise a weakness in India’s insurance market. Many households remain uninsured, while others hold policies that provide insufficient cover or impose restrictions they discover only when making a claim.
Life insurance is growing at around 10%, broadly in line with nominal GDP growth, while general insurance is expanding at 1.3 times the economy’s rate, driven largely by health insurance. These figures suggest considerable scope for expansion. They reveal little, however, about whether the protection households purchase is adequate.
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Rising medical costs have made hospitalisation difficult to finance from savings alone. Yet non-life insurance penetration remains at just 1% of GDP, reflecting limited spending on protection against health, property and other risks. The National Health Accounts estimates for 2022–23 put out-of-pocket expenditure at 43.4% of total health expenditure. This was considerably lower than the 64.2% recorded in 2013–14, but higher than the 39.4% reported for 2021–22. Households continue to finance a substantial share of healthcare directly.
Health insurance often leaves families exposed
Paying premiums does not guarantee adequate protection. A health insurance policy may carry a low sum insured, exclusions, waiting periods, co-payments or room-rent restrictions. A family may discover that its preferred hospital is outside the insurer’s network or that a treatment is excluded. Claims can also become contentious when insurers and policyholders disagree over the terms of coverage.
When hospital bills exceed the policy limit, the balance must come from household savings, borrowing or asset sales. Medical inflation can erode the value of cover that appeared sufficient when the policy was purchased. Households that cannot afford periodic increases in their sum insured may become progressively more exposed to medical expenses.
Life insurance presents a different problem. It has traditionally served both as a risk-management instrument and a savings vehicle. Policies combining insurance with investment or guaranteed returns help households accumulate assets, but often provide less life cover per rupee of premium than pure term insurance.
A household may therefore own several life insurance policies and still lack sufficient protection against the death of its principal earner. The appropriate measure of coverage is whether the payout can meet outstanding debts, children’s education costs, household expenses and other obligations until dependants have an alternative source of income.
For families dependent on a single income, inadequate life cover can turn the death of an earning member into a financial crisis. The number of policies sold provides no reliable indication of whether this risk has been addressed.
Insurance penetration conceals the protection gap
India’s conventional measures of insurance development need to be supplemented by indicators of effective coverage. Insurance penetration measures premiums as a share of GDP, while insurance density measures premium expenditure per person. Both are useful for assessing the development of the market. Neither establishes how many households have meaningful protection, whether their policies cover the risks they face or how effectively insurers settle claims.
According to IRDAI’s insurance statistics, insurance penetration remained at 3.7% of GDP in 2024–25, unchanged from the previous year. Life insurance penetration slipped from 2.8% to 2.7%, while non-life penetration remained at 1%. The global average was 7.3% in 2024, comprising 3% for life insurance and 4.3% for non-life insurance. India’s shortfall is particularly pronounced in the non-life segment.
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Insurance density presents a similar picture. Annual premium expenditure per person increased from $95 in 2023–24 to $97 in 2024–25, against a global average of $943 in 2024. Life insurance density stood at $72 in India, compared with $388 globally, while non-life density was $25 against a worldwide average of $555.
China recorded insurance penetration of around 4.2%, while the United States was at approximately 12.1%. Differences in income, healthcare financing and insurance-market structures limit the usefulness of direct comparisons. The figures nevertheless indicate how far India has to go in expanding insurance coverage.
In absolute terms, India already has a substantial insurance industry. In 2024–25, insurers collected premiums of ₹11.93 lakh crore, issued 41.84 crore policies and paid claims and benefits worth ₹8.36 lakh crore. Assets under management stood at ₹74.44 lakh crore at the end of March 2025. India was the world’s tenth-largest insurance market by premium volume, with a global market share of 1.8%, according to Swiss Re figures cited by the government.
A large insurance industry can therefore coexist with widespread financial vulnerability. Moreover, the aggregate claims figure includes maturity and surrender payments from life insurance policies. It cannot be treated as a measure of compensation paid for insured risks.
Claims settlement and distribution costs need reform
Seth’s emphasis on claims management and transparency addresses an important source of customer dissatisfaction, particularly in health insurance. Conventional claim-settlement ratios can give an incomplete picture of how insurers serve policyholders. A high ratio based on the number of claims settled does not reveal how much of the amount claimed was actually paid or how long an insurer took to authorise hospital admission and discharge.
Policyholders need comparable information on claims paid by value, settlement times, deductions and repudiations. Clearer disclosure of exclusions and renewal conditions would also make it easier for customers to choose appropriate policies. Such information should be available before purchase, rather than emerging during a dispute.
The distribution model deserves equal attention. Insurance depends heavily on agents and intermediaries, whose commissions finance customer acquisition and servicing but can also raise costs. IRDAI is considering reforms that would bring average health insurance commissions down from around 24% to 15–20%, with higher commissions for new policies than renewals.
Lower commissions could ease pressure on premiums, provided the savings reach policyholders. Insurers and intermediaries have a legitimate concern that sharply reduced remuneration could weaken customer servicing or discourage agents from reaching households unfamiliar with insurance. The regulator must balance distribution costs against the need to expand access, particularly outside established urban markets.
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There is also a considerable gap in the availability of health insurance. A 2023 study published in Frontiers in Public Health, using National Family Health Survey data collected during 2019–21, found that only about two-fifths of Indian households had at least one member covered by some form of health insurance. Coverage varied substantially across states and communities.
The survey predates subsequent expansions in government health insurance schemes and should not be used as a current coverage estimate. Its findings nevertheless show why national penetration figures can conceal substantial geographic and socioeconomic disparities. Even where a household has one insured member, the remaining members may have no protection.
India needs to measure effective insurance coverage
Public policy should combine targeted support for vulnerable households with standardised, affordable insurance products for those able to contribute. Government-funded health schemes have an important role in protecting lower-income families, while private insurers can offer products suited to different income levels and financial risks.
Affordable policies need clear minimum benefits and transparent exclusions. Customers should be able to compare the protection available for a given premium, including the extent of co-payments and restrictions. More comprehensive plans will remain beyond the reach of many households unless insurers can contain costs and offer suitable coverage options.
IRDAI should also publish indicators that measure the number of lives covered, the adequacy of sums insured and the effectiveness of claims settlement. These would provide a more useful assessment of household financial security alongside conventional measures of penetration and density.
Faster growth is necessary for an industry serving a large and underinsured population. But an insurance market that collects more premiums without protecting families from major financial losses has achieved only part of its purpose. The regulator’s challenge is to ensure that growth in insurance spending translates into a measurable reduction in household vulnerability.