India’s Insurance Penetration Drops to 3.7% in FY24, Highlights Challenges

India’s insurance sector witnessed a setback in FY24, with insurance penetration declining from 4% in FY23 to 3.7%, according to the Insurance Regulatory and Development Authority of India’s (IRDAI) latest annual report. Despite robust efforts by the regulator to broaden insurance coverage across the nation, the figures highlight the challenges of achieving the ambitious goal of “Insurance for All” by 2047, in line with India’s centenary year.

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Decline in Life Insurance Penetration

A significant contributor to the drop in overall insurance penetration was the reduction in life insurance penetration. In FY24, life insurance penetration fell to 2.8% from 3% in FY23. The decline marks a continuation of the downward trend seen in FY23, where India’s Insurance Penetration share price had also dipped from 4.2% in the preceding year.

General insurance penetration, however, remained steady at 1% during the same period, indicating limited expansion in non-life insurance products. Life insurance’s sluggish performance contrasted with the sector’s aspirations of greater inclusivity and deeper market penetration.

Improvement in Insurance Density

While penetration levels flagged, India saw a marginal improvement in insurance density, which measures the premium per capita. Insurance density rose from $92 in FY23 to $95 in FY24. This increase was driven by a rise in non-life insurance density, which grew from $22 to $25, while life insurance density remained unchanged at $70.

“Insurance penetration is measured as the percentage of insurance premiums to GDP, whereas insurance density is calculated as the ratio of premium to population (per capita premium),” the IRDAI explained in the report. Despite the slight improvement in density, the disparity between India and global averages remains stark.

Global Comparisons Highlight India’s Challenges

India’s insurance penetration and density are significantly lower than global benchmarks. In 2023, global insurance penetration stood at 7%, with life insurance penetration at 2.9% and non-life penetration at 4.1%. Insurance density worldwide was $889, vastly exceeding India’s $95.

Developed nations like the US, South Korea, and the UK reported insurance penetration levels of 11.9%, 11%, and 9.7%, respectively. South Africa, a notable outlier among emerging economies, recorded penetration of 11.5%, highlighting the potential for improvement in India’s insurance market.

IRDAI’s Vision for “Insurance for All”

The IRDAI has reiterated its commitment to achieving universal insurance coverage by 2047, urging insurers to innovate and expand their reach. With a population of 1.4 billion, India presents immense potential for growth in both life and non-life insurance segments. However, the decline in penetration indicates that significant challenges remain, including low awareness, limited accessibility, and affordability of insurance products.

Conclusion

India’s declining insurance penetration in FY24 underscores the critical need for innovative strategies and regulatory measures to enhance coverage. While improvements in insurance density reflect incremental progress, they fall short of addressing the systemic issues hampering the sector’s growth. Bridging the gap with global standards will require sustained efforts from insurers, policymakers, and stakeholders to make insurance more accessible and appealing to India’s vast and diverse population. The IRDAI’s vision for “Insurance for All” remains an aspirational goal, with much work needed to translate this ambition into reality.