India’s Insurance Sector Set to More Than Double by 2030: IBAI-McKinsey Report

Syllabus: GS3/Economy

Context

• Recently, a joint report by the Insurance Brokers Association of India (IBAI) and McKinsey & Company outlined that India’s insurance industry is projected to surge by 123% by 2030 — from ₹11.2 lakh crore in 2024.

India’s Insurance Industry

• It  is one of the premium sectors experiencing upward growth.
  • This upward growth of the insurance industry can be attributed to growing incomes and increasing awareness in the industry. 
• India is the fifth largest life insurance market in the world’s emerging insurance markets, growing at a rate of 32-34% each year. 
• In recent years, the industry has been experiencing fierce competition among its peers which has led to new and innovative products within the industry.

Data Analysis 

• Current Statistics:
  • Gross Written Premiums (GWP): ₹11.2 lakh crore in 2024, up from ₹7.8 lakh crore in FY2020.
    • It is projected to reach ₹25 lakh crore GWP by 2030, a 123% increase;
    • Insurance Penetration in India is currently at 3.7% of GDP, below the global average of 6.8%.
    • Non-life GWP to triple to ₹2.8 lakh crore (nearly 3 times its current value), led by SMEs and capital-intensive industries like textiles, pharma, and automotives.
  • Retail Insurance: The retail segment is expected to account for ₹21 lakh crore of the total GWP by 2030.
    • More than 90% of this is projected to be driven by the life insurance segment.
    • Two Key Customer Tiers:
      • Top-end (UHNI and HNI): Households with personal financial assets over ₹8.5 crore.
      • Mass-market: A broad base of underserved customers.

Key Challenges

• Underinsurance & Coverage Gaps: Many consumers, especially in rural areas, are unaware of insurance benefits.
  • 87% gap in life insurance coverage nationwide;
  • 31% of population lacks health insurance;
  • 50% of vehicles operate without mandatory third-party insurance;
• Low Penetration: Insurance penetration remains at 3.7% of GDP, below the global average of 6.8%.
• Affordability & Trust: Insurance is often seen as expensive or unreliable; technical jargon deters buyers.
• Mis-selling & Fraud: Persistent issues with unsuitable products and deceptive practices undermine trust.
• Claims Complexity: Lengthy documentation and poor support discourage policyholders.
  • 50% of affluent customers switched insurers due to poor claims handling.
  • 55% of SMEs faced claim rejections; 75% need help with documentation.
• Regulatory Bottlenecks: Overregulation and data limitations hinder product innovation, especially in agriculture.

Policy Support for India’s Insurance Sector

• IRDAI’s Vision 2047: The Insurance Regulatory and Development Authority of India (IRDAI) is driving reforms to bridge protection gaps and simplify access to insurance.
• Legislative Support: Key acts include the Insurance Act (1938), IRDA Act (1999), and amendments allowing greater foreign investment and operational flexibility.
• Bima Vistaar Scheme: A proposed all-in-one bundled policy covering life, health, accident, and property risks — designed for quick payouts and ease of use.
• Bima Sugam Platform: A digital one-stop shop for buying policies and settling claims, with plans to link state death registries for faster life insurance settlements.

Government Interventions and Incentives

• FDI Liberalization: The government raised the foreign direct investment cap in insurance from 74% to 100%, encouraging capital inflow and global partnerships.
• GST Reforms: Ongoing discussions aim to reduce the 18% GST on health and life insurance, especially for senior citizens and term policies.
• Social Schemes: Over 44 crore people were covered under PM Suraksha Bima and PM Jeevan Jyoti Yojana in FY23.
• Parametric Insurance: States like Nagaland are adopting climate-linked insurance models for disasters, with payouts triggered by weather thresholds.

Operational and Market Reforms

• Use-and-File Policy: Insurers can launch products without prior IRDAI approval, speeding innovation and market responsiveness.
• Digital Expansion: IRDAI is promoting online distribution, AI-driven claims processing, and simplified policy language to boost trust and accessibility.
• Bond Forward Adoption: Insurers are shifting ₹3.5 trillion in derivative exposure to bond forwards, improving capital efficiency and portfolio stability.

Road Ahead

• Simplify Products: Standardized offerings like Saral Jeevan Bima and Arogya Sanjeevani are steps in the right direction.
• Boost Digital Access: UPI, ABHA IDs, and online platforms are expanding reach and efficiency.
• Empower SMEs: Tailored advisory and sector-specific products can drive adoption.
• Strengthen Regulation: IRDAI’s reforms aim to balance innovation with consumer protection.
• Bridging the Gap: The IBAI-McKinsey report underscores the need for product customization, sector-specific solutions, and advisory support to bring underserved segments — particularly SMEs — under the umbrella of insurance.

Source: IE