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Informist, Thursday, Aug. 6, 2026

 

MUMBAI – India's insurance sector is poised for a long-term growth, supported by structural economic changes, low insurance penetration, and an evolving regulatory landscape, S&P Global Ratings said in a report. However, the rating agency highlighted sustained pressure on underwriting profitability in the non-life insurance segment, capital adequacy concerns at some public sector units, and macroeconomic risks which could temper the sector's growth trajectory. 

 

In its report titled 'India Insurance Sector Trends: Potential Evident, Caution Warranted', S&P Global Ratings said accelerated industry reforms, including the liberalisation of foreign investment norms, are expected to attract capital, encourage mergers and acquisitions, and deepen insurance penetration in the country. At the same time, the agency cautioned that pricing practices in the non-life industry continue to rely heavily on investment income, keeping profitability under pressure despite healthy premium growth. 

India's relatively low insurance penetration provides substantial room for expansion, the report said. It noted that liberalisation, increased competition and regulatory reforms are expected to shape the next phase of industry development. However, risks including energy stress, a weaker-than-expected monsoon and global economic uncertainty could slow India's economic growth and, in turn, insurance demand.

 

 

The report highlighted robust premium growth across both life and non-life insurance segments, with private insurers steadily gaining market share. In the life insurance business, the private sector's share of total premiums increased to 43.3% by Mar. 2026 from 38.2% in Mar. 2022, while public sector insurers' share declined to 56.7% from 61.8%, as per the report. 

 

In the non-life segment, private insurers expanded their share of gross domestic premiums to 52.4% from 49% over the same period, while the share of public sector insurers fell to 30.5% from 35%, the report said. Standalone health insurers also increased their presence, reflecting the growing importance of specialised health insurance.

The report pointed to a significant foreign participation and accelerated merger and acquisition activity across the sector as overseas insurers raise their ownership stakes in Indian ventures. The report attributed the rise in foreign participation to reforms, easing their access to Indian market.

 

Despite favourable growth prospects, S&P warned that several challenges could weigh on insurers' financial performance. It said macroeconomic headwinds and inflationary pressures could dampen demand while compressing profitability. Lower investment yields, higher claims and regulatory transitions, including the implementation of Indian Accounting Standard 117 and the move towards a risk-based capital framework, could increase capital requirements, compliance costs and earnings volatility over the medium term.

Within the non-life insurance segment, underwriting profitability remains under strain because of elevated claims costs in motor third-party insurance and group health, coupled with aggressive pricing. The report noted that repricing in fire and health insurance has helped moderate claims experience, but persistent losses in motor insurance continue to weigh on industry margins.  

 

S&P also observed that insurers remain heavily dependent on investment income to support profitability. Investment returns from the sizeable asset bases of public sector insurers, including real estate holdings, provide some earnings support, while private insurers generally report better returns on equity due to more efficient capital structures.

Health insurance continues to be a key growth driver for the industry. According to the report, motor and health insurance together account for more than 70% of total domestic non-life premiums. Rising medical inflation and greater awareness among consumers are expected to sustain growth in the health segment. Public sector insurers continue to account for more than 60% of government insurance schemes and around 40% of group health policies, while private insurers dominate retail health and motor insurance, accounting for more than 80% of retail health policies and over 70% of motor policies.

On the capital front, S&P said most insurers maintain adequate regulatory solvency levels, although pockets of vulnerability remain. Three public sector general insurers continue to remain below regulatory solvency requirements despite special regulatory forbearance provided by the Insurance Regulatory and Development Authority of India. Among private insurers, Bajaj General was highlighted as having the strongest capital relative to premiums, while United India Insurance continues to face the greatest capital pressure.

In the life insurance segment, the report said the industry has maintained steady growth supported by substantial renewal premiums, particularly for public sector insurers. Product mix has gradually shifted towards non-participating and linked products, reflecting changing market preferences. Private insurers continue to derive market share gains through bancassurance partnerships, while public sector insurers benefit from sticky renewal business and group insurance portfolios.

S&P said most private life insurers are generating modest profitability by focusing on non-participating guaranteed savings and protection products, while Life Insurance Corp. of India has benefited from recent accounting changes that have supported earnings despite its relatively lower return on assets due to its massive asset base.

Looking ahead, S&P expects recent regulatory reforms to support the government's goal of achieving "Insurance for All by 2047". Measures such as permitting 100?I, easing governance norms, revising health insurance guidelines, implementing Ind AS 117, introducing a risk-based capital regime and rolling out the Bima Trinity initiative are expected to improve capital inflows, governance, transparency, product innovation, affordability and insurance penetration over the coming years.  End

 

Reported by Diksha Tripathy

Edited by Akul Nishant Akhoury

 

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