India Insurance Sector Seen Gaining Profitability on Premium Growth, Reforms: Moody’s

Indian insurance industry is set to enter a phase of stronger profitability, supported by sustained premium growth, favourable economic conditions, deeper digitization and the prospect of long-pending reforms in the state-owned insurance sector, Moody’s Ratings said in its report today.

Moody’s expects India’s economy to remain a key demand driver for insurance. Real GDP growth is projected at about 7.3% in the fiscal year 2025-26, compared with 6.5% in the previous year. Rising incomes and steady economic momentum are translating into higher demand for life, health and general insurance products. Reflecting this trend, total insurance premiums rose 17% in the first eight months of 2025-26, a sharp acceleration from the 7% growth recorded in FY25.

Moody’s highlighted  that premium growth has been broad-based. Life insurance new business premiums have expanded strongly, while health insurance continues to benefit from higher awareness of medical risks and out-of-pocket costs. Digitization has played an important role by improving distribution, reducing onboarding frictions and widening access, particularly beyond major urban centres. Digital platforms have also helped insurers lower acquisition costs and speed up policy issuance, supporting both growth and operating efficiency.

Moody’s notes that India’s insurance penetration remains relatively low at 3.7% of GDP in FY25, compared with double-digit levels in developed markets. This structural gap indicates significant headroom for expansion over the medium term, even as insurance density has edged higher to $97 per capita. The combination of economic growth and technology-led distribution is expected to keep premiums on a strong upward trajectory.

The outlook for profitability is also tied to potential reforms in the state-owned insurance sector, which still exerts a large influence on market pricing. The government has outlined plans to recapitalize and possibly merge or privatize some state-owned insurers, provided they improve underwriting performance. Moody’s views these measures as credit positive, as stronger underwriting discipline among large public insurers could ease pricing pressure across the industry and support more sustainable premium rates

However, the agency cautions that the timing of reforms remains uncertain. Past efforts have faced operational and legislative delays, and it is unclear when meaningful improvements will be visible. Even so, any progress could help the industry address persistent underwriting losses. In FY25, the sector as a whole remained loss-making at the underwriting level due to rising claims, despite reporting an overall after-tax profit.

Recent policy measures are expected to provide additional support. The government’s decision to exempt individual life and health insurance policies from goods and services tax has improved affordability and lifted new business volumes, particularly in retail segments. While the removal of tax credits may partly offset profitability gains, Moody’s expects the net impact on demand to be positive.

Moody's said capital raising is likely to continue as insurers expand. In FY25, insurers raised about ₹37.9 billion through paid-in capital and subordinated debt to support growth. Regulators are encouraging more listings, which should keep capital inflows steady. At the same time, rapid premium growth and evolving regulatory requirements, including a move toward risk-based capital norms, may put pressure on solvency ratios, particularly for fast-growing private insurers