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.

The Insurance Regulatory and Development Authority of India (IRDAI) will issue draft regulations on insurance commissions to address growing concerns over excessive payouts in the sector. M Nagaraju, Secretary of the Department of Financial Services (DFS), announced the regulatory move during an exclusive interview with CNBC-TV18, emphasizing the government's commitment to protecting policyholder interests.

Government Concerns Over High Commission Payouts

The regulatory initiative stems from complaints about insurance companies paying disproportionately high commissions to agents and distributors. According to Nagaraju, these excessive payouts create a cascading effect that ultimately harms policyholders through increased premiums or weakened incremental capital ratios (ICR).

"There have been complaints that some insurance companies are paying very high commissions. As a result, premiums go up or the ICR becomes low," Nagaraju explained. He emphasized that policyholders bear the ultimate burden when commission structures become excessive or when financial ratios deteriorate due to high distribution costs.

Enhanced Regulatory Powers for IRDAI

The government is working to strengthen IRDAI's oversight capabilities over distribution expenses across the insurance sector. The objective focuses on ensuring commission payments remain within reasonable limits while maintaining fair compensation for insurance intermediaries.

Nagaraju stressed that reforms under the Insurance Act will lead to tighter control over both the quantum and methodology of commission payments. The government wants IRDAI to possess clear regulatory powers ensuring "nobody is paying too much commission."

Insurance Amendment Bill Provisions

The Insurance Amendment Bill has already granted IRDAI expanded authority to regulate commission structures and agent compensation. Under the new framework, the regulator can set limits on commission, remuneration, and rewards paid to insurance agents and intermediaries.

Insurers now face mandatory requirements to submit detailed disclosures regarding their expenses of management. This provision provides IRDAI with comprehensive visibility into insurance companies' cost structures, enabling more effective monitoring and regulation of distribution expenses.

Impact on Industry Oversight

The enhanced regulatory framework represents a significant shift toward stricter oversight of insurance sector operations. By requiring detailed expense disclosures and empowering IRDAI with commission-setting authority, the government aims to create a more transparent and policyholder-friendly insurance environment.

The upcoming draft regulations will likely establish specific parameters for commission payments while ensuring adequate compensation for legitimate distribution activities. This balanced approach seeks to maintain industry growth while protecting consumer interests from excessive cost burdens.