The Insurance Regulatory and Development Authority of India has flagged a significant gap between health insurance premium growth and protection outcomes in FY25, despite the sector achieving record performance in claims settlement and premium collection.

Premium Growth vs Protection Outcomes

General and health insurers collected ₹1.17 lakh crore in health insurance premiums during FY25, marking growth of over 9% compared to the previous year. However, IRDAI noted in its latest annual report that this increase did not fully translate into proportionate improvements in coverage quality and protection outcomes.

The sector covered around 58 crore lives under approximately 2.65 crore policies, excluding personal accident and travel insurance. Despite this expansion, IRDAI highlighted that the health insurance protection gap remained significant, particularly in individual coverage.

Claims Settlement Performance Reaches Record High

Non-life and health insurers delivered record performance in health insurance claims settlement during FY25, processing unprecedented volumes while improving efficiency metrics. The industry settled approximately 87% of registered claims compared to 83% in FY24, processing 32.6 million health insurance claims.

Total payouts increased substantially to ₹94,248 crore from ₹83,493 crore in the previous year. However, the average amount paid per claim declined to ₹28,910.00 from ₹31,086.00, attributed to a larger proportion of lower-ticket claims as retail and group health insurance penetration expanded.

Structural Challenges and Coverage Gaps

IRDAI observed that while government-sponsored and group policies accounted for a large share of lives covered, individual policies represented a smaller proportion, indicating limited voluntary adoption of health insurance by households. The regulator pointed to rising healthcare costs as a structural challenge, with net incurred claims increasing during the year.

Cashless settlement continued to dominate claims payments, with approximately 66.35% of the total claim amount paid through the cashless route, largely unchanged from 66.17% in FY24.

Regulatory Focus and Future Direction

IRDAI stressed that premium growth alone does not ensure adequate financial protection if coverage limits, exclusions, and claim settlement experiences do not keep pace with rising medical expenses. The regulator emphasized the need for insurers to improve product design, claims servicing, and transparency to strengthen consumer confidence.

The authority continues to monitor health insurance pricing, claims trends, and grievance data to address gaps between premium growth and policyholder outcomes, while balancing affordability and sustainability for insurers. During the year, IRDAI mandated insurers to work toward 100% cashless claim processing, implementing strict timelines requiring pre-authorisation within one hour and discharge approvals within three hours.

India's insurance industry experienced a transformative year in 2025, marked by landmark policy reforms, accelerated digitalisation, and robust growth across segments, positioning the sector for sustainable expansion despite persistent penetration challenges.

Landmark Policy Reforms Drive Sector Transformation

Parliament's approval of the Sabka Bima, Sabki Raksha (Amendment of Insurance Laws) Bill, 2025, allowing 100% foreign direct investment in the sector, marked a watershed moment for the industry. The reform is expected to attract long-term global capital, boost competition, and drive innovation in products, technology, and risk management.

Another significant development was the GST exemption on individual life and health insurance premiums, effective September 2025. By reducing the tax rate to 0%, the move improved affordability and positioned insurance as an essential financial product, spurring renewed consumer interest.

Digital Revolution Accelerates Industry Growth

Digitalisation emerged as a defining theme in 2025, with platforms such as Bima Sugam and the National Health Claims Exchange simplifying customer interactions. Artificial intelligence and machine learning enhanced underwriting, claims processing, and fraud detection capabilities across the sector.

The life and health insurance segments showed robust growth, with standalone health insurers recording double-digit premium growth, reflecting deeper penetration and rising awareness. Total premiums are expected to reach ₹3.21-3.24 lakh crore.

Penetration Challenges Persist Despite Growth

Despite transformative developments, insurance penetration remained unchanged at 3.7% in FY25, significantly below the global average of 7.3%. The stagnation reflects ongoing challenges in expanding coverage despite growth in absolute premium terms.

Life insurance penetration declined to 2.7% from 2.8% in the previous year, while non-life insurance penetration remained flat at 1.0%. Insurance density increased marginally to $97 per capita from $95, though this remains substantially below the global density of $943.

Strong Financial Performance Across Segments

The life insurance sector delivered robust financial performance despite penetration challenges. Industry-wide profit after tax increased significantly, with the majority of insurers reporting positive results.

Life Insurance Corporation of India saw an 18.38% increase in profits, while private life insurers collectively posted profit growth of 16.69%. The GST exemption boosted life insurance demand, with consumers increasingly focused on protection-oriented and non-participating products for long-term financial planning.

Future Outlook and Growth Drivers

Industry consensus indicates that growth in 2026 will be driven by trust, simplicity, and service quality, supported by policy reforms, capital inflows, and technology-led efficiency. The enhanced regulatory framework provides a foundation for sustainable expansion while addressing persistent penetration gaps.

With these transformative developments, India's insurance sector appears well-positioned to deepen its role in the country's long-term economic and social security framework, targeting the vision of Insurance for All by 2047.