Why Insurance Penetration is Falling in India?

Before understanding why insurance penetration is falling in India let’s understand what is insurance penetration and what it indicates. Insurance penetration indicates the number of people buying insurance policies. A higher insurance penetration indicates more people are buying insurance policies in your country and people are more secure and financially aware.

According to IRDAI (Insurance Regulatory Development Authority of India), insurance penetration in India witnessed a drop to 3.7% in FY 2024 as compared to 4% in FY 2023. In FY 2023, it decreased from 4.2% in FY 2022 to 4%.?

FACT: The USA has an insurance penetration of 11.6% which is the highest in the country while the global average stands at 6.7%. By the way, India is way behind even the global average.

IRDAI has a mission of ‘Insurance for All by 2047’ but the falling insurance penetration is an alarming situation for them. Moreover, IRDAI has urged insurance companies and web aggregators to align with their vision and mission and work towards it. IRDAI also formed a committee to visit the rural areas of India to ensure greater insurance penetration.

But why insurance penetration is falling in India? Let’s understand it.

Reasons for Falling Insurance Penetration in India

There are various reasons for falling insurance penetration in India. Let’s understand each of them in detail.

1. Falling Life Insurance Penetration

The major reason for the falling insurance penetration in India in FY 2023-24 is due to the decreasing life insurance penetration in India from 3% in FY 2022-23 to 2.8%.?

2. Lack of Financial Awareness

Due to the lack of financial awareness and literacy insurance penetration is lowering. The awareness is far less in the rural and tier-2, 3 cities. People consider insurance as an unnecessary expense rather than an investment. The perception has to be changed to improve the penetration rate.

3. Spam and Misselling

Due to a lot of spam and misselling of insurance policies, people have trust issues with the insurance companies. That’s why they are not willing to invest in an insurance policy.

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How Insurance Penetration and Density is Calculated?

Despite falling insurance penetration in India the insurance density in India has risen marginally from $92 in 2023 to $95 in FY 2024.?

Let’s understand how insurance penetration and insurance density are calculated so that you have a fair idea of why they increase, decrease, or remain stagnant year-on-year.

Insurance Penetration = Total Insurance Premium : Gross Domestic Product (GDP)

The insurance penetration is calculated every year as the total premiums collected every year and GDP (Gross Domestic Product) changes every year.

Insurance Density= Total Premiums/Country’s Population

The insurance density also changes every year due to changing premiums and the country’s total population.

In a Nutshell

Decreasing insurance penetration in India is alarming and a threat to the IRDAI’s mission of ‘Insurance for all by 2047’. To increase the penetration rate, IRDAI and all the insurance companies have to focus on spreading insurance awareness, especially in rural areas.

We, at PolicyX.com, are always here to offer you expert advice regarding any insurance-related query. If you have any questions or concerns you can contact at 1800-420-0269 or schedule an appointment with us.??