Insurance growth, Profitability Under Strain; Sector Trailing Pace Needed for Viksit Bharat: Report

India’s insurance sector is witnessing a structural slowdown in growth and profitability, underscoring the need for a fundamental shift in operating model, according to a new report by Boston Consulting Group (BCG) and India InsurTech Association released on Thursday.

The total insurance premium in India has grown at a compound annual growth rate (CAGR) of 11–12 per cent over the past decade, while short-term premium growth has been restricted to 7 per cent. In contrast, the industry would need to accelerate to a 13–15 per cent CAGR to meet the government’s Viksit Bharat aspirations, according to the report.

Profitability has also come under pressure. The return on equity (RoE) for private life insurers has declined to 7 per cent in FY24, from 11 per cent in FY17, while private general insurers have seen their RoE drop to 10 per cent, from 15 per cent over the same period.

At the same time, the operating environment has become increasingly dynamic. The introduction of GST, evolving expense of management (EoM) norms, and new commission guidelines are reshaping industry economics. Additionally, emerging privacy and consent frameworks are forcing insurers to adapt their operational processes.

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The report noted that these macro shifts -- slowing growth, margin compression, and a complex regulatory landscape -- are driving insurers to rethink their business and technology models, with AI and digital adoption likely to play a pivotal role in transformation.

“Achieving 13–15 per cent annual premium growth will require coordination across the ecosystem. Policymakers and regulators must continue to enable higher levels of innovation, strengthen regulatory sandboxes, and establish clear Responsible AI frameworks to safeguard consumer interests while fostering innovation,” Pallavi Malani - India Leader, Insurance Practice, Managing Director and Partner, BCG told FE BFSI.

“At the ecosystem level, the sector needs to come together to set data standards (as in bank and other financial institutions). Lastly, positive customer narrative and rebuilding customer trust is critical for driving growth,” she said, asserting how AI and GenAI can transform India’s insurance operating model to make it both efficient and inclusive. 

Malani said AI enables insurers to move from manpower-intensive processes to leaner, more productive, and scalable operating models, improving productivity and strengthening unit economics.

This assumes significance as the report claims a $4 billion annual profit opportunity at full-scale AI adoption with 60 per cent uplift on a $6 billion profit base driven by $25 billion in additional revenue and $3 billion in cost savings.

A key part of this opportunity will be driven by expansion into new segments and geographies as insurers reach previously underserved markets, according to Malani. 

“India’s strong AI and digital foundation, supported by Indic-first multilingual models, will further enhance marketing, outreach, and fulfilment across the value chain. Together, these advancements can help insurers build efficient, inclusive, and future-ready operating models that extend protection to underserved markets,” she added.

According to the report, India has a sizeable and well entrenched insurtech ecosystem with over 150 insurtech companies with a cumulative valuation of $15.8 billion and a revenue at $0.9 billion in 2024. 

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However, the sector saw a slowdown in funding in line with global trends. Globally, funding to insurtechs continued to decline, in line with the fintech sector with $4.1 billion in 2024 vis-a-vis $13.8 billion in 2021.

In India, health-focused insurtechs saw the highest traction with 4 out of 5 top deals in 2024.

While AI adoption among insurers has gained momentum with over 90 per cent of them globally having launched AI or Gen AI pilots however only 7 per cent have scaled to enterprise-wide adoption.

“Basis what we have seen across markets, insurers that have scaled successfully have done four things well, first, reimagining two-three priority areas end-to-end rather than focus on point solutions; second, invest in data; third, drive organizational change management starting from the top; and fourth, have clear measurable metrics and leadership sponsors involved in this scale up,” said Malani.