India's insurance market: poised for rapid growth

The world outlook has changed significantly since 2021. After navigating the COVID-19 pandemic, the global economy faces several challenges including continuing supply chain bottlenecks, the Ukraine-Russia conflict, an energy crisis and high inflation. There will likely be some spill over to India’s economy in the near term and, after a strong recovery to 8.7% growth in 2021 from the pandemic-induced slump, we estimate that real gross domestic product (GDP) growth will slow to 7.0% in 2022 and to 5.4% in 2023. Inflation will remain a near term concern, the main drivers being high energy and commodity prices, rupee weakness and interest rate hikes in advanced economies.

All told, we remain positive on India’s medium- to long-term economic outlook: we forecast average annual real GDP growth of 6.7% in the 10 years to 2032. We are also positive on the insurance market. India is one of the fastest growing insurance markets in the world, and we forecast that it will be the sixth largest by 2032. We estimate that total insurance premiums will grow on average by 14% annually in nominal local currency terms (9% per annum in real terms) over the next decade.

Regulatory developments and digitalisation should support insurance market sector growth. A series of regulations are being introduced to improve insurance penetration, increase capital inflow, improve valuation, and facilitate the entry of small, specialised and niche players. The regulator is pushing for reforms to develop India as a reinsurance hub. The government has raised the limit on foreign direct investment in the insurance sector to 74% from 49%, and the insurance regulator is planning to introduce risk-based capital requirements. The regulator has also suggested amendments to the existing regulatory sandbox that could foster further innovation in the sector.