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Insurance premium in the country is not increasing because companies are improving their services, but because companies are spending huge money to attract customers.
Total premium income of insurance companies stood at Rs 11.9 lakh crore in 2024-25.New Delhi. The Reserve Bank of India (RBI) has pointed to structural pressures in the insurance sector, saying the rise in insurance premiums is now being driven by companies’ high-cost distribution-driven strategies rather than operational efficiency. RBI’s latest ‘Financial Stability Report’ states that despite superficial stability, it has been seen recently that there may be pressure on continuity and coverage expansion in the medium term. According to the report, “The main pressure appears to be the high expense structure, particularly persistently high rates of acquisition costs. Premium growth is now mostly due to high-cost delivery strategies, not operational efficiency.”
The report says that upfront acquisition costs in the life insurance sector have not ensured that benefits reach directly to policyholders as scale grows. Moreover, the potential benefits of digitalization have not yet been fully realized.
RBI warned
The report warns, ‘Continued high expenses of insurance companies could weaken dividends and increase cyclical fluctuations.’ According to the report, there is a need to control costs, link intermediary incentives to policyholders’ value and sustainability, and adopt technology-based low-cost delivery models. These measures will help balance consumer value, regional stability and high quality, comprehensive coverage in the long run.
According to financial data, the total premium income of insurance companies stood at Rs 11.9 lakh crore in 2024-25, while it was Rs 8.3 lakh crore in 2020-21. However, there are signs of slowing growth in both the life insurance and non-life insurance sectors. The report also noted the difference in cost efficiency of public and private life insurance companies. Public life insurers emphasized expense management and kept acquisition costs low while private life insurers saw a sharp increase in commission payments reflecting higher cost distribution-driven growth.
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