Economy Survey 2025: Insurance coverage lower than global average, notable gaps

This lag in insurance coverage presents opportunities for insurers. They can expand their reach in tier-II and tier-III cities and rural areas with low awareness and accessibility.

“Insurance density in India is relatively low compared to global standards. Innovative distribution models can facilitate the inclusion of underinsured customers who are already covered by government schemes," the survey said, citing schemes such as the Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY), Pradhan Mantri Fasal Bima Yojana (PMFBY), and the Pradhan Mantri Jan Arogya Yojana (PMJAY).

Also Read: Economic Survey 2025: A corporate bonanza of big profits but slow pay

Citing Swiss Re Institute’s projections, the survey said India’s insurance sector is expected to grow 11.1% and become the fastest-growing market among G20 nations over the next five years (2024-2028) supported by factors such as an expanding middle class, technological advancements, and supportive regulatory measures.

“The non-life insurance sector is expected to double its premium-to-GDP (gross domestic product) ratio over the next two decades. However, it will remain below the global average," said the survey presented by Union Finance Minister Nirmala Sitharaman in Parliament. 

Evolving customer expectations and emerging risks like climate change and geopolitical uncertainty present significant challenges for insurers. Increasing life expectancy and a growing elderly population also pose underwriting risks related to longevity and highlight the widening pension gap.

Further, non-financial risks have gained importance alongside traditional financial risks, warranting the need to address and manage concerns related to misselling, delayed claim settlements, AI (artificial intelligence), cybersecurity, and third-party interactions.

“The Economic Survey 2024-25 has highlighted the critical need to address India’s low insurance penetration rate. Reasons like affordability and the lack of flexible payment options contribute to lower penetration in tier-II and -III cities. In addition, challenges like the lack of trust and misinformation deter consumers from availing themselves of coverage," said Shilpa Arora, co-founder and COO, Insurance Samadhan.

Also Read: Now, Economic Survey wades into India's working hours debate

She said rising instances of natural disasters and the growing prevalence of chronic illnesses across all age groups call for tailored coverage at affordable rates. Insurers must focus on creating public awareness and offering tailored products to address this gap.

"While financial inclusion has generally been on the rise, the insurance sector would need to have a tailor-made approach for targeting tier II and III cities. This becomes critical given the global interest in the sector, increasing inflow of foreign investment and potential for further liberalization in the foreign investment limit by the regulators," said Moin Ladha, partner, Khaitan & Co.

Data from the Insurance Regulatory and Development Authority of India (IRDAI) showed that 200,000 complaints were filed against insurers in 2022-23. Of the complaints against life insurance companies, 50% were about insurers engaging in misselling, whereas 66% of the complaints against non-life insurers were related to claim delays or denials.

The survey said a clear and quantitative understanding of risk appetite is essential for effective risk management and urged insurers to develop strong capabilities to tackle these emerging risks through rapid innovation while ensuring efficiency and productivity through simplification, standardization, and digitization.

“AI applications in healthcare, health insurance and education would greatly benefit from higher degrees of transparency and accountability, as these sectors are way more human-centric than others. Biases in models being applied to these sectors can result in adverse, unintended consequences," said the survey.

Insurance growth trend

India’s insurance market has continued its upward trajectory, with total insurance premiums growing 7.7% in 2023-24 to ₹11.2 trillion. Insurance density saw a modest rise from $92 in 2022-23 to $95 in 2023-24, maintaining the rising trend seen since 20216-17. Life insurance density remained consistent at $70, while non-life insurance density increased from $22 to $25, according to the survey.

The life insurance industry recorded a premium income of ₹8.3 trillion, up 6.1% on-year. Renewal premiums accounted for 54.4% of the total premium received by life insurers, and new businesses contributed the remaining 45.6%. Life insurers paid benefits of ₹5.8 trillion in 2023-24, of which ₹42,284 crore was due to death claims.

Also Read: Economic Survey 2025 is worth preserving for this one piece of advice

The report highlighted that there has been a noticeable shift within life insurance towards protection and guaranteed return savings products, which now cover 40% of households, largely due to Life Insurance Corporation of India's extensive network.

On the other hand, the gross direct premium of non-life insurers rose 7.7% on-year to ₹2.9 trillion in 2023-24, primarily led by health and motor segments. The net incurred claims of non-life insurers stood at ₹1.72 trillion for 2023-24.

Despite this, insurance penetration declined slightly from 4% in 2022-23 to 3.7% in 2023-24. Within this, life insurance penetration dropped from 3% in 2022-23 to 2.8% in 2023-24, whereas non-life insurance penetration remained stable at 1%.

Policy support

Highlighting the role of government support in the insurance sector, the Economic Survey 2025 called for the setting up of insuring institutions to provide a soft landing for workers whose finances have been hit and whose well-being has been affected during the transitionary period.

“These institutions help secure a standard of living during the shift, keep inequalities in check and aid in keeping the social fabric cohesive. They are also responsible for reducing the recession risk, for individuals and for societies," it said.

It added that such institutions help build safety nets (the National Insurance Act, 1911, and the Beveridge Report, 1942, in the UK), protect worker rights and provide finances (such as credit unions), provide housing (Young Men’s Christian Association during the 19th century), and social and emotional support during periods of displacement.

Also Read: Mint Quick Edit | Economic Survey 2025: Deregulate to grow

The survey also suggested addressing issues pertaining to systemic liquidity, such as entry costs, information asymmetry, and creating a robust secondary corporate bond market. This includes roadblocks such as insurance and pension funds not being allowed to invest in bonds rated lower than ‘AA’, which crowds out small players in the corporate bond market.

“Liquidity is also bottled through regulations that prevent provident funds from investing in corporate bonds for more than three years. Moreover, insurance funds are not allowed to invest in debt issued by private companies," said the survey.

Foreign capital

The insurance ecosystem in the International Financial Services Centre (IFSC) Gift City comprises 37 entities, including 15 IFSC Iinsurance Offices (IIOs) and 23 IFSC Insurance Intermediary Offices (IIIOs). The total (re)insurance premium booked by IIOs was $427 million, and (re)insurance premium transacted by IIIOs was $1,036 million as of September 2024.

Insurance services received the highest foreign direct investments (FDIs) of over 62% among all service sectors, followed by the financial services sector, which received over 18% of the total FDI equity inflows to the services sector.

The data comes amid insurance players' calls to increase the FDI limit in the insurance sector to 100% from the current 74% in order to encourage more foreign capital into the sector, improve capital access for the sector, foster innovation and competition, and introduce global standards and best practices.

Government schemes

The government provides insurance to farmers through the Pradhan Mantri Fasal Bima Yojana (PMFBY)—the largest crop insurance programme in the world in terms of farmer enrolment and the third largest by premiums. 

The scheme has recently launched several technological interventions such as YES-TECH, WINDS, and CROPIC28. These have increased transparency by minimizing human intervention and fostering greater trust among stakeholders, implementing states/UTs and insurance companies. The number of contributing states increased to 24 in 2024-25 from 20 in 2020-21 and the number of insurers to 15 from 11.

These advancements have led to a 32% reduction in premium rates compared to previous years. As a result, in 2023-24, the number of enrolled farmers reached 40 million, an increase of 26% from 31.7 million in 2022-23. The insured area also expanded to 60 million hectares in 2023-24, a 19% rise from 50 million hectares in 2022-23. The scheme's acreage and farmer enrolment figures are at an all-time high.

Also Read: V. Anantha Nageswaran on the Economic Survey: A new order is forming before our eyes. We have a shot at shaping it.

In addition, government health insurance schemes constitute a 5.9% share in healthcare financing schemes, of which social insurance schemes like Employees' State Insurance Corporation (ESIC) 98, Central Government Health Scheme (CGHS) 99, and Ex-Servicemen Contributory Health Scheme (ECHS) 100 have a 3.2% share. 

Government-supported voluntary insurance schemes like Ayushman Bharat- Pradhan Mantri Jan Arogya Yojana (AB PM-JAY), Rashtriya Swasthya Bima Yojana (RSBY) and state-specific government health insurance schemes, among others, have a 2.6% share in healthcare financing schemes.