Insurance: Why is your insurance getting more expensive? The RBI has revealed the reason..

The Reserve Bank of India (RBI) has pointed to structural pressures in the insurance sector, stating that the increase in insurance premiums is now being driven by companies' high-cost distribution-led strategies rather than operational efficiency. The RBI's latest 'Financial Stability Report' states that despite apparent stability, there could be pressure on sustainability and coverage expansion in the medium term. According to the report, “The main pressure stems from the high expenditure structure, particularly the persistently high rate of acquisition costs. Premium growth is now largely driven by high-cost distribution strategies, not operational efficiency.”

The report states that upfront acquisition costs in the life insurance sector have prevented the benefits of economies of scale from being passed on directly to policyholders. Furthermore, the potential benefits of digitalization have not yet been fully realized.

RBI Issues Warning
The report warns, “The persistently high expenses of insurance companies could weaken profitability and amplify cyclical fluctuations.”  According to the report, there is a need to control costs, link intermediary incentives to policyholder value and sustainability, and adopt technology-based, low-cost distribution models. These measures will contribute to consumer value, sectoral stability, and a balance of high-quality, broad coverage in the long run.

According to financial data, the total premium income of insurance companies stood at ₹11.9 lakh crore in 2024-25, compared to ₹8.3 lakh crore in 2020-21. However, there are indications of a slowdown in the growth rate in both the life and non-life insurance sectors. The report also highlights the difference in cost efficiency between public and private life insurance companies. Public life insurers emphasize expense management and maintain lower acquisition costs, while private life insurers have seen a sharp increase in commission payments, reflecting high-cost distribution-led growth.

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