Insurance growth constrained by high costs

India’s insurance sector faces a persistent structural challenge, according to the Economic Survey 2025-26, released on 29 January 2026. The Survey highlights that the sector’s struggles are less about insufficient customer demand and more about distribution inefficiencies and soaring customer acquisition costs (CAC), which are constraining growth and financial inclusion.

The Government has set an ambitious target of “Insurance for All by 2047”, requiring the insurance industry to expand at a pace exceeding nominal GDP growth. While overall premium income and insurance density have shown steady increases, broader market penetration remains limited, particularly among underinsured households and small businesses.

High Customer Acquisition Costs Impeding Growth

At the core of the issue is the rising customer acquisition cost — the expenditure insurers incur to attract and onboard policyholders. These costs primarily arise from commissions and fees paid to intermediaries such as agents and brokers. According to the Survey, CAC is no longer just an operational friction; it has become a structural constraint that distorts market dynamics, limits inclusion, erodes consumer value, and threatens long-term industry stability.

Despite significant investment in digital platforms, the sector continues to rely heavily on traditional intermediary-led distribution. This dependence has hindered efforts to extend coverage to underserved segments. While insurance density — the average premium per policyholder — increased to US$97 in FY25, insurance penetration — the proportion of GDP contributed by insurance — fell to 3.7%, highlighting the gap between revenue growth and inclusive coverage.

Key Industry Indicators:

*Exact ratios vary by segment; overall pattern indicates heavy distribution cost impact.

Policy Measures and Structural Reforms

The Economic Survey calls for a policy-led recalibration to attract long-term capital and rationalise the cost structure. Among the proposed reforms is the Sabka Bima, Sabki Suraksha Act, 2025, aimed at modernising regulatory oversight, promoting efficient distribution models, and reducing reliance on costly intermediaries.

The Survey underscores that technological adoption, streamlined distribution, and regulatory support are critical to converting rising premium revenues into wider insurance coverage. Without meaningful cost rationalisation, the industry risks continuing its pattern of revenue growth without achieving substantial financial inclusion, leaving large segments of society underprotected.

In conclusion, while India’s insurance sector has grown steadily in nominal terms, high acquisition costs remain the primary barrier to achieving a truly inclusive and resilient insurance market. Reforming distribution models and adopting innovative technologies are seen as essential steps to unlock the sector’s full potential.