The Reserve Bank of India has flagged rising structural pressures within the insurance coverage sector, warning that premium progress is more and more being pushed by high-cost, distribution-led methods somewhat than enhancements in working effectivity, even because the sector stays secure within the close to time period, in line with its newest Financial Stability Report.“While posing no near-term systemic risks, the surface-level stability masks emerging structural pressures that could weigh on medium-term sustainability and coverage expansion,” the RBI mentioned within the report.“A primary pressure is the persistence of a high expense structure, particularly the acquisition costs. Premium growth has been increasingly driven by high-cost distribution-led strategies rather than operating efficiency,” the central financial institution famous.In the life insurance coverage section, the RBI mentioned frontloaded acquisition costs have restricted the extent to which scale efficiencies are handed on to policyholders. It added that the anticipated advantages from digitisation haven’t but absolutely materialised.“From a financial stability perspective, continuously elevated expenses could weaken profitability buffers and amplify cyclical vulnerabilities,” the report mentioned.The RBI mentioned a reorientation in direction of value rationalisation, higher alignment of middleman incentives with coverage persistency and worth, and wider adoption of technology-enabled low-cost distribution fashions are important to enhance the sector’s long-term resilience.Supported by regulatory initiatives such because the risk-based capital framework, enhanced disclosures and strengthened market conduct requirements, a sustained moderation in expense depth would enhance client worth and assist the sector transition from a ‘high-cost, low-inclusion’ mannequin to an ‘affordable-cost, broad inclusion and high quality’ equilibrium, it added.According to the report, complete premium earnings rose to Rs 11.9 lakh crore in 2024-25 from Rs 8.3 lakh crore in 2020-21, reflecting continued enlargement of the insurance coverage market.“However, total insurance premium masks a significant growth moderation, as the growth rates for both life and non-life sectors have slowed sharply,” the RBI mentioned.At a sectoral stage, the life insurance coverage section continues to exhibit excessive focus threat, whereas the non-life sector has seen a structural shift, with medical health insurance rising because the main section. Product focus throughout each segments signifies restricted diversification, the report famous.Total property under administration of the insurance coverage sector stood at Rs 74.4 lakh crore as on March 31, 2025, with life insurers accounting for 91 per cent of complete investments, underscoring the sector’s rising position as a serious institutional investor.The RBI additionally highlighted a divergence in value effectivity between private and non-private insurers.“Public life insurers show a strong focus on expense management and potentially lower acquisition costs underlined by a flat commission structure despite growing premiums. In contrast, private life insurers show a steep increase in commission pay-outs, particularly surging from 2022-23 onwards, indicating business acquisition at higher marginal cost,” it mentioned.In the non-life section, public insurers keep a secure however excessive expense base, with fee costs remaining low and flat. Private non-life insurers, nevertheless, present a sharper escalation in fee bills, pointing to a high-cost distribution-led progress technique that might influence underwriting margins, the RBI mentioned.The report additionally famous that insurance coverage density rose steadily from $78 in 2020-21 to $97 in 2024-25, indicating greater per-capita spending on insurance coverage. At the identical time, a decline in insurance coverage penetration means that GDP progress has outpaced the rise in premiums.
