As the reinsurance rates have been on the lower side and several insurance companies have increased premium for health insurance, general insurers’ profitability is likely to improve in the current financial year
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The country’s general insurance industry is expected to register around 13 per cent year-on-year (y-o-y) growth in gross written premium this fiscal after witnessing a moderation in the last fiscal, India Ratings and Research (Ind-Ra) said on Monday.
Health and Crop insurance segments would largely drive the growth in FY26. As the reinsurance rates have been on the lower side and several insurance companies have increased premium for health insurance, general insurers’ profitability is likely to improve in the current financial year, said Jinay Gala, Director, Ind-Ra.
“For the last fiscal, growth in gross written premium for nine months was around 8 per cent y-o-y for the general insurance industry. We are projecting that the growth for FY25 would be around 8.5 per cent. Last fiscal, gross premium growth was subdued because vehicle sales were on the lower side. Also, crop insurance was on the lower side. Even the commercial lines were not that great because of the capex slow down. But that cannot continue forever,” Gala told businessline.
Drivers of growth
“Incrementally what we see is that all the subsegments would be driving the growth. It will be largely on health insurance, and crop insurance to a certain extent. Even there would be some amount of growth which should play out in FY26 on the vehicle sales as well. And, also on the capex coming back, there could be a growth in the commercial lines. Based on that we see the overall growth in gross written premium could be around 13 per cent in FY26,” he pointed out.
Ind-Ra said growth between public sector units (PSUs) and private players has been uneven and will continue this way with PSUs lagging behind due to various constraints. Premium growth led by value would be a larger contributor than new policyholder additions for the sector.
PSUs lagging in growth
The growth is largely lagging for PSUs, mainly due to capital constraints along with lower operational efficiency, leading to negative operating leverage in underwriting and thus moderating internal accruals. Ind-Ra said market share plays a large role in driving selection benefit where the insurer could move from exposure-based underwriting to experience-based underwriting, thereby improving pricing and product features.
Also, multiline insurers are better placed than single line insurers in terms of risk diversification, as was evident during the pandemic when standalone health insurers (SAHI) were severely impacted. The growth of gross direct premium is highly correlated with nominal GDP growth, where the correlation co-efficient has been 0.75 from FY17.
Pricing pressures persist for general insurers due to increasing competition and decreasing consumer affordability, thereby impacting insurers’ underwriting profitability.
According to Ind-Ra, higher interest rates and capital gains play a crucial role in driving return ratios for the general insurance sector, as the investment income on the investment book has been cushioning losses on the underwriting side for the sector.
Reinsurance rates
“Presently, reinsurance rates are little bit softer, which will help general insurance companies on the profitability side. Also, there have been multiple players who have taken price revisions on the health insurance side. Its impact and benefits will largely be seen in FY26, which will also drive the profitability for the sector. And, regulations like Expenses of Management (EoM) are getting stabilised, we see going forward there could be profitability improvement,” Gala added.
Published on April 7, 2025
