The Reserve Bank of India has identified significant structural pressures in the insurance sector, highlighting how premium growth is increasingly driven by high-cost distribution strategies rather than operational efficiency. According to RBI's latest financial stability report, while the sector poses no near-term systemic risks, surface-level stability masks emerging challenges that could impact medium-term sustainability and coverage expansion.

Key Structural Pressures Identified

The central bank's analysis reveals persistent high expense structures, particularly in acquisition costs, as a primary concern. The report emphasizes that premium growth has been increasingly driven by high-cost distribution-led strategies rather than operating efficiency improvements.

Impact on Life and Non-Life Sectors

In the life insurance sector, frontloaded acquisition costs have limited the extent to which scale efficiencies are passed on to policyholders. The RBI noted that expected benefits from digitization remain unrealized, creating additional pressure on cost structures.

The report highlights a distinct divergence in cost efficiency between public and private life insurers. Public life insurers demonstrate strong expense management focus with potentially lower acquisition costs, supported by flat commission structures despite growing premiums. Conversely, private life insurers show steep increases in commission payouts, particularly surging from 2022-23 onwards, indicating business acquisition at higher marginal costs.

Insurance Penetration and Density Trends

The sector shows mixed performance indicators, with insurance density increasing while penetration rates decline.

Regulatory Recommendations

The RBI emphasizes the need for reorientation towards cost rationalization, aligning intermediary incentives with persistency and value to policyholders. The central bank advocates for wider adoption of technology-enabled low-cost distribution models to address current challenges.

Supported by regulatory initiatives including risk-based capital framework, enhanced disclosures, and strengthened market conduct standards, sustained moderation in expense intensity could improve consumer value and reinforce sector resilience. The RBI envisions facilitating transition from the current 'high-cost, low-inclusion' model to an 'affordable-cost, broad inclusion and high quality' equilibrium.

Financial Stability Implications

From a financial stability perspective, the RBI warns that continuously elevated expenses could weaken profitability buffers and amplify cyclical vulnerabilities. The report notes that while total premium income reflects consistent market expansion, growth rates for both life and non-life sectors have slowed sharply, indicating underlying structural challenges that require attention.

Younger Indians are reshaping the country's credit landscape by entering the financial ecosystem earlier and demonstrating a clear preference for secured, asset-backed products, according to PB Fintech 's comprehensive year-end analysis of its Credit Score consumer base. This shift represents a fundamental change in borrowing patterns and credit behavior among the younger demographic.

Home Loan Market Shows Strong Youth Participation

The housing finance sector experienced notable transformation in 2025, with younger borrowers driving significant growth. The data reveals compelling trends in both borrower demographics and loan characteristics:

This trend toward earlier homeownership stems from multiple factors including stable salaried incomes, the rise of dual-income households, and significantly improved access to credit facilities. Joint ownership arrangements continue to dominate the market, accounting for 58% of all home loans, indicating collaborative financial planning among younger couples and families.

Credit Card Preferences Shift Toward Security

The credit card market demonstrates a clear pivot toward secured products, reflecting more cautious and informed financial decision-making among younger consumers. Traditional unsecured credit card issuance declined 21% year-on-year, while secured credit cards experienced robust growth of 62%.

This preference for collateral-backed credit products enables younger borrowers to build safer credit histories while managing financial risk more effectively. Geographically, Delhi NCR leads the market with 11% of new card issuance, followed by Mumbai at 6%, highlighting the concentration of credit activity in major metropolitan areas.

Personal Loan Segment Records Strong Growth

Personal loans witnessed substantial expansion with 35% year-on-year growth, primarily driven by smaller, short-term loans that surged 77%. This growth pattern indicates a shift in borrowing behavior, with consumers increasingly using personal loans for short-term liquidity needs rather than long-term consumption purposes.

Salaried individuals account for approximately 70% of personal loan disbursals, reflecting stable income sources and improved creditworthiness assessment. The top 10 metropolitan cities contribute 34% of total personal loan volumes, with Delhi and Mumbai leading this segment as well.

Market Implications and Future Outlook

PB Fintech's analysis indicates a more informed and deliberate approach to credit management among younger Indians. The growing preference for secured and asset-backed products suggests potential benefits for both borrowers and the broader financial ecosystem. Industry experts believe this trend toward secured credit products may support healthier credit profiles and contribute to a more balanced retail credit ecosystem in the coming years, as younger borrowers demonstrate increased financial literacy and risk awareness in their credit decisions.