The Reserve Bank of India has flagged emerging structural pressures in the insurance sector, warning that premium growth is increasingly being driven by high-cost, distribution-led strategies rather than improvements in operating efficiency, even as the sector remains stable in the near term, according to its latest Financial Stability Report.“While posing no near-term systemic risks, the surface-level stability masks emerging structural pressures that could weigh on medium-term sustainability and coverage expansion,” the RBI said in the report.“A primary pressure is the persistence of a high expense structure, particularly the acquisition costs. Premium growth has been increasingly driven by high-cost distribution-led strategies rather than operating efficiency,” the central bank noted.In the life insurance segment, the RBI said frontloaded acquisition costs have limited the extent to which scale efficiencies are passed on to policyholders. It added that the expected benefits from digitisation have not yet fully materialised.“From a financial stability perspective, continuously elevated expenses could weaken profitability buffers and amplify cyclical vulnerabilities,” the report said.The RBI said a reorientation towards cost rationalisation, better alignment of intermediary incentives with policy persistency and value, and wider adoption of technology-enabled low-cost distribution models are essential to improve the sector’s long-term resilience.Supported by regulatory initiatives such as the risk-based capital framework, enhanced disclosures and strengthened market conduct standards, a sustained moderation in expense intensity would improve consumer value and help the sector transition from a ‘high-cost, low-inclusion’ model to an ‘affordable-cost, broad inclusion and high quality’ equilibrium, it added.According to the report, total premium income rose to Rs 11.9 lakh crore in 2024-25 from Rs 8.3 lakh crore in 2020-21, reflecting continued expansion of the insurance market.“However, total insurance premium masks a significant growth moderation, as the growth rates for both life and non-life sectors have slowed sharply,” the RBI said.At a sectoral level, the life insurance segment continues to exhibit high concentration risk, while the non-life sector has seen a structural shift, with health insurance emerging as the leading segment. Product concentration across both segments indicates limited diversification, the report noted.Total assets under management of the insurance sector stood at Rs 74.4 lakh crore as on March 31, 2025, with life insurers accounting for 91 per cent of total investments, underscoring the sector’s growing role as a major institutional investor.The RBI also highlighted a divergence in cost efficiency between public and private insurers.“Public life insurers show a strong focus on expense management and potentially lower acquisition costs underlined by a flat commission structure despite growing premiums. In contrast, private life insurers show a steep increase in commission pay-outs, particularly surging from 2022-23 onwards, indicating business acquisition at higher marginal cost,” it said.In the non-life segment, public insurers maintain a stable but high expense base, with commission costs remaining low and flat. Private non-life insurers, however, show a sharper escalation in commission expenses, pointing to a high-cost distribution-led growth strategy that could impact underwriting margins, the RBI said.The report also noted that insurance density rose steadily from $78 in 2020-21 to $97 in 2024-25, indicating higher per-capita spending on insurance. At the same time, a decline in insurance penetration suggests that GDP growth has outpaced the rise in premiums.
Insurance costs under lens: RBI flags high-cost distribution driving premium growth, warns of medium-term pressure
