Kolkata: India’s life insurance industry is heading towards a phase of accelerated growth, backed by strong macroeconomic fundamentals, rising financial inclusion, and evolving customer preferences, a study report said.
According to PL Capital, one of India’s most trusted financial services organizations, in its latest report on Life Insurance said the industry is expected to clock a compound annual growth rate (CAGR) of 14.5 per cent over FY23–35E, making it one of the most promising segments in India’s financial services space.
Despite steady expansion in the recent decades, India’s life insurance penetration remains significantly below global benchmarks. At 2.8 pc of GDP in FY24, it trails the developed market average of 5.6 pc. Similarly, insurance density in India stood at just USD 70 per capita, compared with USD 3,182 in advanced economies. This gap highlights a multi-decade opportunity for the industry, particularly as households increasingly allocate savings towards financial instruments.
With nominal GDP projected to grow at 10.5 pc annually, coupled with rising financial awareness, life insurance is set to emerge as a critical pillar of India’s household balance sheets.
The report underscores that structural factors such as the absence of social security nets, a growing middle class, and increasing life expectancy will fuel demand for protection and annuity products. These segments, currently underpenetrated, are expected to contribute significantly to the sector’s long term growth.
Historically, Unit Linked Insurance Plans (ULIPs) have dominated the product mix, aided by buoyant equity markets and attractive tax benefits. However, the report anticipates ULIP share to moderate as customers gravitate towards non-linked offerings.
Non-Participating (NPAR) products, with their guaranteed returns and lower reinvestment risks, are gaining traction, especially in a low interest rate environment.
Annuities, still in their infancy, are expected to expand rapidly. Rising longevity and an ageing population, combined with the increasing popularity of structured retirement products, make annuities a compelling growth driver.
Insurers are also recalibrating their distribution mix. While bancassurance continues to dominate, contributing 30-60% of sales for most players, private insurers are investing in agency networks and direct digital channels to reduce dependence on single bank partnerships and penetrate Tier-2 and Tier-3 markets.
The sector has navigated several regulatory changes over the past few years, from new surrender value guidelines to expense of management (EoM) norms. More recently, the GST Council’s decision to exempt life insurance premiums from GST (effective September 2025) has created short term profitability challenges, as insurers lose access to input the tax credits.
The report estimates a 20 to 100 basis point impact on FY26 Embedded Value (EV) across players. However, insurers are expected to mitigate this drag through commission rationalization, pricing adjustments, and operating efficiencies.
The GST exemption is likely to improve affordability, enhance persistence, and deepen penetration, driving stronger long term growth. VNB (Value of New Business) margins, which have steadily expanded over the past five years due to better persistence and a richer product mix, are expected to remain resilient.
PL projects margin profiles to improve over FY25–28E as protection and NPAR products gain scale. Valuations for life insurers have corrected in recent years, with the sector trading at one year forward P/EV of ~2.0x, compared with 2.6x in 2020. This de-rating, according to the report, presents an attractive entry point for investors.
