As Union Budget 2026 approaches, insurance industry experts across health, life, and general insurance segments are calling for targeted fiscal and structural reforms to improve affordability, expand penetration, and strengthen India's insurance ecosystem in line with the Insurance for All by 2047 vision.

Medical Inflation Drives Reform Demands

Medical inflation remains a central concern for the health insurance segment. Srikanth Kandikonda, Chief Financial Officer at ManipalCigna Health Insurance, highlighted that medical inflation in India is projected at 11.5%–14%, among the highest in Asia, placing sustained pressure on household finances. While measures such as GST removal on insurance premiums and 100% FDI allowance have helped affordability, rising healthcare costs continue to challenge coverage adequacy.

Kandikonda emphasized that higher public health spending, stronger primary care networks, and enhanced focus on prevention could reduce long-term treatment costs. He also called for enhanced tax benefits for OPD services and preventive health screenings beyond existing Section 80D limits.

Section 80D Revision Proposals

Multiple industry experts are advocating for substantial increases in tax deduction limits to reflect current healthcare realities:

Rajendra Upadhyaya, Chief Growth Officer at Choice Insurance Broking, noted that current Section 80D limits no longer reflect double-digit medical inflation reality, as a ₹10 lakh family health cover often exceeds current deduction limits. Shikha Bhatia, Associate Professor of Finance and Accounting at IMI Delhi, supported similar upward revisions to better align with rising healthcare costs.

GST and Input Tax Credit Challenges

Narendra Bharindwal, President of Insurance Brokers Association of India (IBAI), highlighted structural tax issues within the insurance value chain. While GST exemption on retail health and life insurance has improved affordability, insurers cannot claim input tax credit on exempt products. GST paid on distribution, servicing, and technology costs gets embedded into premiums, limiting investment in deeper penetration and digital infrastructure.

Bharindwal suggested allowing input tax credit or implementing a calibrated offset mechanism, along with stronger public-private partnerships for health, MSME, climate, and catastrophe risks.

Investment and Infrastructure Focus

From a macro-fiscal perspective, Ajit Banerjee, President and Chief Investment Officer at Shriram Life Insurance Company, indicated the government is likely to continue balancing fiscal prudence with growth priorities. While central government capex may face limits, higher allocations could be seen for:

• Defence and railways
• Shipbuilding and alternate energy
• Education initiatives
• Coordinated health programs under National Health Mission

Banerjee stressed the need to raise insurance tax deductions, either by increasing Section 80C limits or creating separate sections for insurance premiums to improve penetration.

Digital Infrastructure and Distribution Reforms

Sharad Mathur, Managing Director and CEO at Universal Sompo General Insurance, emphasized that achieving Insurance for All by 2047 requires a time-bound roadmap supported by shared digital insurance infrastructure and cost-efficient distribution frameworks. He advocated for sustained funding for insurance literacy, particularly in rural and low-income regions, and greater private sector participation in government schemes.

Hanut Mehta, CEO and Co-Founder of BimaPay Finsure, noted that Budget 2026 could be an inflection point if policy signals support deeper insurance coverage, improved credit access, and clearer digital lending norms. Better data-sharing, simplified KYC, and tax clarity could make premium financing mainstream, enabling customers to opt for adequate coverage without liquidity stress.

Sector-Specific Recommendations

Subrata Mondal, Managing Director and CEO at IFFCO-TOKIO General Insurance Company, acknowledged that recent GST rationalization on health insurance has provided policyholder relief and could improve penetration. He called for higher allocations to crop and climate risk insurance, expanded PMFBY coverage, and creation of disaster and catastrophe insurance pools to improve resilience amid increasing climate volatility.

Alok Rungta, Managing Director and CEO at Generali Central Life Insurance, emphasized that limits on tax concessions for life insurance and retirement products need revision to reflect rising incomes and evolving life-stage needs. Simplifying taxation, encouraging pure protection plans, and incentivizing long-term savings could improve affordability and participation.

India's insurance sector stands poised for substantial growth following recent legislative reforms that are expected to significantly improve the country's insurance penetration rates, according to Dinesh Kumar Khara, Former Chairman of SBI. Speaking on the government's flagship insurance reform initiative "Sabka Bima, Sabki Suraksha," Khara highlighted the vast opportunity presented by India's current underinsured status.

Current Market Penetration Reveals Significant Gap

India's insurance market demonstrates substantial room for expansion when compared to global benchmarks. The current penetration statistics reveal the scale of opportunity available to the sector.

Khara emphasized that India's insurance penetration represents approximately half of the global average, while per capita insurance spending remains nearly ten times lower than international levels.

Pandemic Drives Behavioral Transformation

The COVID-19 pandemic has catalyzed a significant shift in consumer attitudes toward insurance, particularly in the health segment. Khara noted that insurance was historically "sold and never bought" in India, but this dynamic has fundamentally changed. Post-pandemic developments show health insurance is now actively purchased by a large segment of the Indian population as people have begun perceiving and hedging risks through insurance products.

Despite this positive trend, Khara acknowledged that the country still has "a long way to go" in achieving adequate insurance coverage across all segments.

Regulatory Reforms Enable Global Best Practices

Recent amendments to the Insurance Act are designed to bring international best practices to India's insurance sector. The most significant change allows 100% foreign capital investment by insurers, creating a liberalized regulatory environment. According to Khara, this reform will substantially improve insurance products, pricing, premiums, and their acceptability among the broader population.

The legislative bill has already been passed, with regulatory frameworks currently under finalization. Implementation is expected to commence once these regulations are formally established.

Strategic Exclusions Reflect Market Maturity Considerations

Several proposals including composite licensing, value-added services, and full open architecture were not included in the final legislation. Khara explained these decisions were guided by global experience and domestic market maturity assessments.

Composite Licensing Rationale:

• Limited global success, primarily in Singapore
• India's scale, population, and economic structure differ significantly
• Life and non-life insurance have fundamentally different liability structures requiring clear segregation
• Current limited overlap exists in health insurance through subsidiaries

Value-Added Services Timeline:

• Such offerings typically emerge as economies and industries mature
• May be revisited at a later stage when market conditions are more suitable

Open Architecture Considerations:

• Differing investment levels across distribution channels influenced the decision
• Bancassurance already provides partial open architecture
• Banks can partner with up to nine companies each in life, general, and health insurance segments

Bancassurance Offers Cost-Effective Distribution

Khara highlighted bancassurance as potentially the lowest-cost distribution model available, leveraging India's extensive banking network for insurance distribution. The channel has demonstrated success through social security schemes including the Pradhan Mantri Jeevan Bima Yojana and accident insurance policies.

To address concerns about mis-selling through bancassurance channels, Khara stressed the importance of industry self-discipline in maintaining ethical distribution practices.

Foundation for Sustainable Growth

While acknowledging that reforms may be implemented in phases, Khara concluded that the current legislative changes establish a strong foundation for deeper insurance penetration and sustainable sector growth in the coming years. The combination of regulatory liberalization, changing consumer behavior, and improved market access is expected to drive significant expansion in India's insurance market.