India’s insurance market: growing fast, with ample scope to build resilience

The global economy held up better than anticipated in 2023, despite several challenges such as high inflation, tight financial conditions and geopolitical tension. Meanwhile, India’s economy remained resilient and at an estimated 6.7%, growth in 2023 will outpace that of other major economies. This robust growth is supported by private consumption and fixed investment. On the inflation front, we estimate consumer price inflation in India to cool to 5.7% in 2023 from 6.7% in 2022 due to monetary policy tightening. Those interest rate hikes, and also El Nino effects, rainfall deficits, and geopolitical tensions (including the war in the Middle East, which could impact oil prices) are some downside risks for India’s growth outlook.

Economic growth, an expanding middle class, innovation and regulatory support is driving insurance market growth in India. Over the next five years (2024‒28), we forecast that total insurance premiums will grow by 7.1% in real terms, well above the global (2.4%), emerging (5.1%) and advanced (1.7%) market averages. At this rate, India will have the fastest growing insurance sector of the G20 countries.

In 2023 alone, premium growth moderated slightly from the previous year, reflecting still-in-process adjustments to the post COVID-19 era. We estimate that life premium growth slowed to an estimated 4.1% from 5.9% in 2022 as memories (ie, risk awareness) of the pandemic faded, and a recent change in tax norms for high-ticket policies weighed on new premium growth. We expect robust growth in life business (premiums up 6.7% in 2024‒28), supported by rising demand for term life cover by the middle-class and the country’s young population, and also increasing industry adoption of Insurtech.

Non-life premium growth moderated slightly from 9.0% in 2022 to an estimated 7.7% in 2023, as the market continued to stabilise after the pandemic. Macro dynamics such as high interest rates, and elevated retail and medical inflation also presented some headwinds to non-life sector growth. Non-life premiums are forecast to grow by an annual average of 8.3% during 2024‒28, driven by economic growth, improvement in distribution channels, government support and a favourable regulatory environment.

The Indian government and insurance regulator have taken several steps to support industry growth. Important among these is the mission “Insurance for all by 2047” launched in November 2022, the main aim of which is to ensure that every citizen and enterprise has appropriate insurance cover/solution. There are also initiatives to attract foreign interest to the market. These reforms, along with robust economic growth, should support further development and expansion of the insurance sector.

Alongside the expanding economy and growing insurance market, India is exposed to many natural catastrophes, including earthquakes, floods, tropical cyclones, drought and wildfires. However, insurance protection against natural catastrophe risks is low: our resilience analysis indicates that 93% of the exposures are uninsured. Economic losses due to natural disasters have been on an upward trend for many years, driven mainly by economic growth and rapid urbanisation. India’s major cities have high population- and asset-value concentrations, and many are exposed to multiple natural hazards.

One challenge in bridging the large protection gap is limited awareness and perception of the risks. The industry also faces challenges in underwriting, with a need for more granular data on existing natural catastrophe exposures, and establishing more robust modelling capabilities. India has made strong progress in setting up early warning systems for tropical cyclones, but there is a long way to go on this front for other hazards (eg, floods).