The stress in the microfinance sector led the country’s top life insurers to sharply reduce exposure to group credit life insurance, resulting in around 50 million people losing the life insurance cover in FY25, the steepest annual decline on record.
The total loan disbursal by the microfinance industry declined 25% in FY25 to ₹1.12 lakh crore, the latest report of Microfinance Industry Network showed, as lenders cut back exposure and reduced the borrower base in response to rising defaults and credit stress in the sector.
Regulatory filings under Forms L-37 and L-28, which track the number of lives insured, show that HDFC Life Insurance, ICICI Prudential Life, SBI Life and Bajaj Allianz Life have significantly reduced their exposure to this product category in FY25. Both are quarterly disclosures.
Piyush Trivedi, chief distribution officer at Kotak Life Insurance, attributed the sharp decline in the group life insurance particularly to the lending slowdown in the microfinance sector over the past 12–18 months.
SBI Life Insurance, India’s largest private life insurer, saw the number of lives covered under its group policies drop 36% year-on-year to 23 million in FY25. HDFC Life Insurance reported a fall in group lives covered to 48 million, from 65 million in FY24. ICICI Prudential Life Insurance and Bajaj Allianz Life Insurance also reported 25–30% declines in group lives covered. Collectively, the top four private life insurers covered 128 million lives in FY25, down by more than 51 million from the previous year.
Credit life is a group insurance product commonly bundled with microfinance, personal, or home loans. For example, if a borrower takes a ₹40,000 microfinance loan for two years, a group credit life policy provides life cover for the same duration. In the event of the borrower’s death, the insurer repays the outstanding loan to the lender, shielding the borrower’s family from the repayment burden.
The group credit-linked life insurance was made popular by Bharat Financial Inclusion (formerly SKS Microfinance) in early 2000s. The company bundled the life cover into small-ticket loans to low-income borrowers who would otherwise remain uninsured.
Pramerica Life Insurance, a JV between subsidiaries of Piramal Capital and Housing Finance and US-based Prudential Financial, saw its number of lives covered fall from 4.7 million to 4.1 million. The insurer has a large share of its group life business tied to NBFCs and MFIs. “There is a bit of a slowdown due to the stress in the microfinance space, but it’s not systemic,” said Karthik Chakrapani, chief business officer at Pramerica Life Insurance. He said the company is focusing on expanding its product and channel mix, including individual business, which has seen a 25% increase in lives covered in the previous fiscal.
Amit Palta, chief Products and distribution officer at ICICI Prudential Life Insurance, acknowledged the impact of this stress on the credit life segment. “We expect some pressure to continue in the MFI segment in the coming quarters as well. The non-MFI segment continues to do well, and we’ve been able to sustain the overall credit life business at the previous year’s level,” he said during the Q4FY25 earnings call. ICICI Prudential reported ₹608 crore in annualised premium equivalent (APE) from credit life policies in FY25.
Insurers expect a revival in group credit life cover as the microfinance sector stabilises. With lenders implementing guardrails and stricter underwriting, loan disbursals are likely to pick up by the third quarter of the fiscal.
“We are already seeing early signs of revival in the microfinance sector. As it improves, the number of lives covered will also increase,” Kotak Life’s Trivedi said.