By Srinath Sridharan
In recent years, Indian insurance leaders have faced a tough task when talking about “industry growth drivers” and “consumer trust”. For some, it has turned into little more than lip service, detached from the consumers’ real challenges and insurance potential. While the industry speaks of lofty goals, the hard truth is that Indian insurance remains far from realising its potential. Despite regulatory ideas to increase penetration — from opening up 100% foreign direct investment (FDI) to reducing capital requirements for new insurers — the industry has seemingly lost sight of a core need: consumer trust.
Insurance penetration in India stood at just 4.2%. The Indian insurance sector is also heavily skewed toward life insurance, which accounts for 76% of total premiums, compared to a global average of 43.7% with non-life insurance forming 56.3% of the market.
Consumer trust is foundational to insurance sector, yet recent surveys suggest many Indians would not even recommend their insurer to a friend. This lack of advocacy reflects an industry that appears self-serving, with talent often shifting between companies but rarely moving towards customer-centred reform. The primary focus has instead been on metrics and the same pool of industry insiders. True security in insurance lies not in policies or profits alone, but in the trust earned by placing consumers at the heart of every decision.
Looking back, certain lobbies sought to keep FDI capped at 49%, benefiting from fixed internal rate of return (IRR) deals that many foreign “partners” had signed to access India. These arrangements effectively meant foreign brands renting local support to gain legitimacy. When FDI range restrictions changed, many hoped for improvements in products and service. But ownership alone doesn’t address underlying issues. What the sector truly needs is patient capital, committed to at least 10-12 years of strategic investment. Instead, there’s a focus on rapidly building a profitable book and diluting stakes for higher valuations. This behaviour — enabled by a lenient regulatory stance — prioritises short-term gains over consumer interest and product quality.
While regulatory shifts have been taking place, they have often felt incremental, lacking the boldness to elevate the sector to a level comparable even to India’s other financial regulators. Changes have come, but they feel held back by a culture of hesitancy. Why? The answer may lie in a reluctance to engage in deeper reforms that prioritise consumer welfare over industry growth metrics. The answer would further be found in the rigour of regulatory supervision over the industry.
For example, claims processes in Indian insurance is another pain point. While fraud prevention is essential, the current approach burdens honest consumers with an adversarial system, where each claim feels like a battle. The overarching ideology seems to assume guilt, requiring consumers to prove themselves at every step. This might be rooted in real fraud concerns, but such a blanket approach creates a deeply hostile environment for policyholders. In general insurance claims as well, policyholders often express concerns about settlement times and the final amount. No amount of digital innovation or streamlined processing will fix this if the underlying attitude remains distrustful.
Insurance is unique as a sector where consumers rely on absolute trust, given that the benefits of policies are often realised only in difficult times — after a loss of life, health, or property. Unfortunately, a gap seems to exist in meeting this essential expectation. Despite the industry’s attempts to dazzle with buzzwords like “consumer engagement”, “distribution reach”, and “digital access”, these efforts ring hollow.
Financial regulators like the Reserve Bank of India, the Securities and Exchange Board of India, and the Insurance Regulatory and Development Authority of India should work together to curb malpractices like mis-selling of financial products across industry segments. Without regulatory accountability, the consumer is left vulnerable, with little recourse in a legal and grievance redress system known for inefficiency and delay.
Take health insurance, a prime example of the sector’s brokenness. It seems an open stakeholder conversation that hospital bills are often inflated, purportedly hand in glove with the sector, with insurers only partially covering costs, claiming fraud concerns. Yet the lack of regulatory action on this speaks volumes. A simple yet radical change would be to mandate “full settlement” within a stipulated period, forcing insurers to pay out fully and promptly unless they can prove otherwise. This would shift the burden from consumer to insurer, creating a system where the regulatory position is to honour rather than deny claims.
Regrettably, the insurance industry’s influence is akin to regulatory capture, often muting any true accountability. While other financial sectors have seen regulatory action against malpractices, insurance appears insulated from such scrutiny. This calls for stricter supervision and a tougher regulatory stance.
The regulatory vision of “Insurance for All” by 2047 to match the political aspiration of Viksit Bharat is well-intentioned, yet setting a distant goal without clear, annual milestones is more tactic than true strategy. With most industry leaders and regulators unlikely to hold their positions by then, this approach lacks immediate accountability. The insurance sector needs an overhaul, not just superficial changes.
Indian insurance needs genuine introspection and a shift in behaviour, where consumer welfare becomes the core purpose of its existence. The regulator must reinvent itself to adopt a “consumer-first” and “digital-first” approach, to cut through the sector’s hubris and bring accountability. Without reform, the industry risks remaining in its own echo chamber, ignoring the very consumers it claims to serve. Only by stepping out of this cycle can Indian insurance achieve the credibility and relevance it so desperately needs.
The writer is policy researcher and corporate advisor.
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