An Inside Look at the Indian Life Insurance Industry in FY 24-25
- CA Miranjit Mukherjee
- 2 days ago
- 4 min read
India Life Insurance industry analysis FY 24-25: A Tale of two sectors
The current regulatory landscape and market dynamics are pulling life insurance companies in opposing directions. On one hand, buoyant equity markets and strong investor interest are driving massive premium growth in Unit Linked Insurance Plans (ULIPs) for private players. On the other hand, the industry is paradoxically witnessing a de-growth in the sheer number of policies sold, indicating that fewer people are actually buying life insurance year on year.
Add to this the recent removal of commission caps by the IRDAI. With the transition to overall Expenses of Management (EOM) guidelines, first-year commission ratios have shot up drastically- in the case of major players like HDFC Life, leaping from 28% in FY 24 to a staggering 45% in FY 25. Are these aggressive acquisition strategies sustainable in the long run? And more critically, with a significant portion of the Available Solvency Margin (ASM) for certain insurers currently being funded by Funds for Future Appropriation (FFA) and subordinated debt, how vulnerable are these balance sheets to future regulatory shifts?
In the attached (scroll to the end) comprehensive FY 24-25 life insurance industry report, we break down the diverging growth paths of LIC versus private insurers, deep dive into persistency metrics, and analyze the strategic playbooks of top industry leaders.
Executive Summary
For all the efforts being made by the companies the industry is not growing w.r.t the number of policies sold. In fact there is a de-growth.
LIC is the key driver for the de-growth. The private players however are growing.
LIC's growth in premium terms is coming from single premium policies while for the private players it is the regular premium policies.
The growth of private players in retail policies has been driven by ULIP business for FY 23-24 and FY 24-25 led by SBI Life.
The private players have grown their group business. 80% of the Group business has been cornered by the top five companies namely SBI Life , HDFC Life , ICICI Prudential , Bajaj Life and ABSLI. Surprisingly Max Life and Tata AIA has a much lower presence in the group space.
Most of the private players have improved their renewal book with a focus on persistency. Stand out is Tata AIA. This is based on a comparison between FY 25 vs FY 22.
Distribution for most of the private insurers is through the bancassurance channel. While SUD Life and Canara HSBC have extreme concentration on the bancassurance channel ( 90% of their individual business is distributed through this channel ) , ICICI Prudential has the most balance distribution - there has been a focus on all insurers to grow the agency and direct distribution channel.
With IRDA removing the commission cap the commission cost % for the first year has shot up in FY 25. Leading the way in this space is HDFC Life is with a commission % of 45% followed by Tata AIA of 36% in FY 25. The issue which is most surprising is the steep jump of the commission % from 28% in FY 24 to 45% in FY 25 for HDFC Life.
Five states of India drive individual life insurance business in India and has remained the same over the last 5 years - Maharashtra , UP , West Bengal , Tamil Nadu and Karnataka both in policies sold and premiums.
In spite of the focus on online business across Industries the need for personal contact in life insurance remains key. Companies have expanded their physical presence led by Tata AIA with 192 branches ( increase between FY 23 and FY 25 ). SLIC is at 114 branches ( increase between FY 23 and FY 25 ).
UP has been the most favored state for branch opening by private players.
Disclosure of VNB Margins is not a requirement from IRDA . However, most of the insurers who have published the number has seen a dip in % terms. It could be driven by a focus on ULIP and a significant increase in acquisition costs.
Finally we have reviewed the solvency of the Life insurers with focus on what is supporting solvency as the insurers grow their business. Quite clearly Life insurers have supported their solvency requirements by raising debt and through FFA ( Funds for Future Appropriation ).
Insurers have to be vigilant on the fact that a number of them - Max Life in particular is surviving with more than 40% of the ASM ( Available solvency margin ) being funded by FFA. Should IRDA change the requirement of solvency by excluding FFA a number of life insurers would find themselves vulnerable.
The FY 24-25 data reveals a highly polarized landscape. The private sector is aggressively riding the wave of ULIPs and regular premiums, while LIC continues to lean heavily on single premium policies and group business. However, the real test for top leadership over the next few quarters will lie in managing soaring acquisition costs and fortifying balance sheets against potential solvency shocks. Relying heavily on FFA and sub-debt to prop up the solvency margin might prove to be a critical vulnerability if the IRDAI tightens its regulatory grip and excludes FFA from solvency calculations. As companies pivot their strategies- from ICICI Prudential’s shift towards Non-Par products to protect VNB Margins, to HDFC Life's sheer dominance in delivering topline through group credit life- data-backed agility will be paramount.
Disclaimer: The material herein is provided for informational purposes only. The information should not be viewed as professional, legal or other advice. Professional advice should be sought prior to actions on any of the information contained herein. CKA is not responsible for any matter concluded by any person based on the contents of this article.
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