Why Insurance Penetration is Falling? India’s Coverage Drops to 3.7% in FY24

India's insurance penetration fell to 3.7 per cent in the fiscal year 2024 as compared 4 per cent to FY23, the Insurance Regulatory and Development Authority of India's (IRDAI) annual report revealed. Notably, in FY23 it declined to 4 per cent from 4.2 per cent in FY22.

The insurance regulator further urged cover companies to align with its vision of 'Insurance for All by 2047' and work towards it.

"To ensure that insurance protection reaches all these segments, IRDAI constituted a committee to revisit the Rural, Social sector and Motor Third-Party (MTP) obligations for the industry," IRDAI said while commenting on its vision for greater insurance penetration.

This came despite the sector regulator's active push to get the entire 1.4-billion population under cover by the time India turns 100 in 2047.

Why Insurance Penetration Declined?

In 2023-24, the decline was mainly driven by a reduction in life insurance penetration, which fell from 3 per cent in 2022-23 to 2.8 per cent. Meanwhile, the growth rate for non-life insurance covers remained steady at 1 per cent during the same period.

However, India's insurance density showed improvement as it reached $95 in FY24 against $92 in FY23. It stated that the upward trend in insurance density has been consistent since 2016-17.

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“Insurance penetration is measured as the percentage of insurance premiums to GDP, insurance density is calculated as the ratio of premium to population (per capita premium),” the report added.

Other Key Highlights

The report informed that a total of 18 life insurance companies reported profits in FY24. Profits of the life insurance industry grew 10.79 per cent in 2023-24 with profit after tax (PAT) of Rs 47,407 crore as compared to Rs 42,788 crore in 2022-23.

The report further highlighted that in FY24, the non-life insurance industry underwrote a total direct premium of Rs 2.90 trillion in India registering a growth of 12.76 per cent from previous year.

"The incurred claims ratio (net incurred claims to net earned premium) of the non-life insurance industry was 82.52 per cent during 2023-24 as against 82.95 per cent of the previous year," the report said.

During 2023-24, the aggregate net incurred claims saw a 15.39 per cent increase to Rs 1.72 trillion from Rs 1.49 trillion.

As of March 31, 2024, there were 26 life insurers, 25 general insurers, eight standalone health insurers, 12 reinsurers and foreign reinsurance branches, and two specialised insurers registered.