India’s Insurance Sector in Economic Survey 2026: Growth, Reforms, Issues & Structural Dynamics Explained

The Economic Survey 2025-26 shows that the India insurance sector shows strong AUM and premium growth in Economic Survey 2026, along with key reforms, penetration gaps, and challenges. has been performing quite well with its assets under management (AUM) increasing to 74.4-lakh crore and total premium collection growing by 43 percent within the last four years. Nevertheless, with the successful growth, the Survey points at the structural imbalance, penetration issues, and distribution expenses. The paper also details historic policy and regulatory changes proposed as part of the visions of Insurance for All by 2047 by the government.

1. Growth of the Insurance Industry: AUM and Development of Premiums.

The fast increase in the size and financial capacity of the insurance business by itself is one of the most remarkable the results of Economic Survey.

Assets Under Management (AUM):

• By March 31, 2025, the total AUM of the insurance companies reached 74.4 lakh crore – is a major pointer to the extent in which the insurance companies have been incorporated into the Indian financial system.
• This AUM is estimated at approximately 91 percent life insurers, which makes it clear that this segment of the institution is one of the most important long-term investors in government securities, corporate bonds, and equity markets.

Premium Collection Growth:

• As of FY 2024-25, total premium income amounts to 11.9 lakh crore as compared to 8.3 lakh crore in FY 2020-21 total premium income has a four-year growth of 43%.
• The growth is extensive, with life insurance of almost three-quarters of total premiums signifying its status as the largest segment.

This is not only an indication of volume growth but also a growth in the use of insurance as a risk cover and as a saving device in households and businesses.

2. Segment-wise Trends: Life vs Non-Life Insurance

Life Insurance

• The sector is still mainly supported by life insurance:
• Still provides the largest amount of premium income.
• Benefits paid out of about 6.3 lakh crore in FY 25.

It is interesting to note that the surrenders and withdrawals have increased to being nearly equal to maturity-payouts which show changing consumer behaviour and liquidity preferences.

Non-Life Insurance

The non-life segment is seen to have significant structural changes:

• Health insurance is now the biggest line of business and its premiums are greater as it represents approximately 41 percent of gross domestic premium replacing motor insurance.
• The net incurred claims in the non-life segment have grown by over 70 percent since FY 21, majorly by the health and motor claims net incurred, due to the increased healthcare cost and frequency of claims.

These have also been met by an increase in capital buffers with the degree of equity share capital of the non-life insurers being over 43,000 crore, more than that of life insurers. This aids in sustaining the levels of solvency even in the face of increased claims burden.

3. Insurance Penetration and Density: The Coverage Gap

Two major indicators are split-performance:

• The Insurance Density (per capita premium) has grown to 97 implying that people covered under insurance are paying more on insurance on average.
•  Insurance Penetration (premiums per cent. GDP), conversely, has now gone down to 3.7 per cent. in FY 25. This means that the premium volumes increased suggesting that the premium volumes have not been able to match the rapid GDP growth which means that there has been little coverage of new segments.

This deviation demonstrates a continued coverage gap – insurers are adding business to the current customers at a rate that is greater than they are introducing new households and businesses to the insurer coverage.

4. Key Policy and Regulatory Reform (2025-26).

Economic Survey is geared towards facilitating the industry to expand very fast by identifying a set of regulatory modifications to focus on making the industry more accessible, saturated, and to strangle the neck of consumer protection.

A. Sabka Bima, Act on Sabki Suraksha, 2025.

• This act is a drastic change in the insurance legislation to update major acts such as the Insurance Act, 1938, and the IRDAI Act, 1999. Key features include:
• FDI Limit Improved to 100% — so as to attract long term stable foreign capital, technology transfer, and international expertise.
• Streamlined Regulatory — intermediaries are registered once and IRDAI approvals are set at elevated standards in transfers of shares minimize regulatory paperwork.
• Reinsurance Reforms – the net owned fund by the foreign reinsurers is now 100 crore less than 5,000 crore which facilitates increase in global reinsurer involvement.
• Policyholder Protection and Education Fund- improves financial literacy and social knowledge on insurance risk cover.

Improved Regulatory Capabilities of the IRDAI, in terms of increased fines and disgorgement authority to eliminate noncompliance.

B. GST Exemption on Insurance Premiums

From September 2025, life insurance and individual health insurance policies have been exempted from GST, improving affordability and encouraging more people to purchase coverage.

C. Strengthened Enforcement and Penalties

Regulatory enforcement has been tightened:

• The maximum penalty for violation under the Insurance Act and IRDAI Act has been raised tenfold — from ₹1 crore to ₹10 crore.
• Insurance intermediaries (brokers, agents, etc.) are explicitly covered under the new penal provisions, enhancing accountability across the distribution chain.
• IRDAI now has the power to order the return of unlawful gains earned through breaches or mis-selling. 

5. Social Security Schemes: PMSBY & PMJJBY

The Economic Survey also highlights the ongoing role of social insurance schemes:

• Pradhan Mantri Suraksha Bima Yojana (PMSBY): Cumulative enrolments reached 56.15 crore as of January 2025.
• Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY): Cumulative enrolments at 26.32 crore as of January 2025.
  These schemes continue to provide basic risk coverage for large segments of the population, serving as foundational layers of financial protection.

6. Key Sector Challenges Highlighted by the Survey

Despite growth and reforms, the Economic Survey identifies persistent challenges:

High Distribution Costs

The sector remains heavily dependent on intermediary networks (agents, brokers), which drive up acquisition and administrative expenses. These costs consume a significant share of premium income, making products less affordable and squeezing underwriting profitability.

Profitability and Cost Structure

• Many private life insurers have seen net profits stagnate despite strong top-line growth.
• Non-life insurers continue to report high combined ratios, relying on investment income rather than underwriting profits to sustain returns.

This cost burden could hurt long-term stability if not addressed.

7. Before vs After Reforms: A Comparative Table

Conclusion: A Sector at the Crossroads of Growth and Reform

• The Economic Survey 2026 offers an unusual and yet fascinating outlook of the state of affairs of the Indian insurance industry:
• The industry has demonstrated a strong growth in AUM as well as premium volume, which sealed it as long-term finance pillar.
• The main change towards being more competitive and robust in the industry is structural reforms, particularly, augmenting FDI, streamlining compliance and improved consumer protection.

Nevertheless, there are still difficulties to consider, the most glaring among them being the expansion of coverage, lower distribution expenses and improved penetration of the lesser-income and underserved classes.

The insurance sector in India is changing rapidly – improving the industry in terms of scale, coverage, affordability, and consumer confidence will define the extent to which the industry can expand in the next 10 years.

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