Life Insurance Sector Set for Growth Boost with 100% FDI Limit Increase
The life insurance sector in India is poised for a significant boost with the government’s decision to increase the Foreign Direct Investment (FDI) limit to 100%. According to a report by rating agency ICRA, this increase will provide the capital necessary to fuel growth in the industry, enabling insurers to expand mortality coverage and increase market penetration.
New Delhi: The life insurance sector in India is poised for a significant boost with the government’s decision to increase the Foreign Direct Investment (FDI) limit to 100%. According to a report by rating agency ICRA, this increase will provide the capital necessary to fuel growth in the industry, enabling insurers to expand mortality coverage and increase market penetration.
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ICRA anticipates that growth in sum assured in the retail segment will continue to outpace the growth in retail new business premiums (NBP). Private insurers have already seen a notable surge in retail sum assured, with a 41% year-on-year increase during the first nine months of FY2025, compared to a 17% rise in NBP. This growth is higher than the 30% growth seen in FY2024.
Impact of Product Shifts and Growing Capital Intensity
The shift in product mix from high-value non-participating (non-par) products to lower-value unit-linked investment plans (ULIPs) is expected to exert pressure on the value of new business (VNB) margins. However, insurers are compensating for the impact of this shift by increasing sum assured and adding rider attachments. As the capital requirements for life insurers are directly related to the sum assured in force, the need for higher capital for incremental growth will remain high.
ICRA notes that the recent proposal to increase the FDI limit to 100% could significantly boost capital inflows into the sector, helping to address the growing protection gap in India. This will also provide insurers with more resources to meet the increasing demand for mortality risk coverage.
Private Insurers Lead in Sum Assured Market
While the Life Insurance Corporation of India (LIC) continues to dominate the market in terms of retail and group NBP, private insurers have gained a substantial lead in the sum assured market. In 9M FY2025, private insurers commanded an 84% market share in retail sum assured and 80% in group sum assured. This is a significant increase from their 63% share in retail NBP and 28% in group NBP during the same period.
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Neha Parikh, Vice President at ICRA, emphasized that mortality protection requires significant upfront capital, risk management, and reinsurance tie-ups, resulting in concentration in the sum assured market. She highlighted that private insurers with a long operational history benefit from a surplus in their backbooks, supporting their ability to underwrite higher sums assured.
With the FDI limit increase, India’s life insurance sector is expected to see enhanced capital inflows, which will help meet the growing demand for coverage and allow insurers to expand their services, ultimately benefitting both the sector and consumers.
