India’s insurance sector outshines China and Thailand in growth

India’s insurance industry has seen remarkable growth, achieving a gross written premium of over US$ 130 billion and an 11% CAGR from FY2020-23. This surpasses countries like Thailand and China, which recorded growth below 5%, as reported by McKinsey & Company.

Image Source: Freepik

India’s insurance sector achieved over US$ 130 billion in gross written premiums, with an 11% CAGR during FY2020-23, outpacing Thailand and China, which recorded less than 5% growth, per a report by McKinsey & Company.

In its report, Steering Indian Insurance from Growth to Value in the Upcoming ‘Techade’, McKinsey notes that life insurance premiums grew 11% annually to reach US$ 107 billion as of 2023, while general insurance grew 15% per annum to US$ 35.2 billion.

“This robust performance, among other reasons, has allowed Indian life insurers to maintain valuation multiples, and price-to-book (P/B) of seven to ten times, compared with just one to two times for regional peers in Asia,” the global consulting firm said.

Despite this growth in premiums, India’s insurance penetration rate dropped from 4.2% in 2022 to 4% in 2023, suggesting that growth hasn’t matched the economy’s expansion.

The report also indicates that, while new business premiums for the top five private life insurers grew over 17% CAGR, their net profits have only grown less than 2% CAGR over the past five years. McKinsey attributes this disparity to cost management challenges due to rising expenses such as commissions, operational, employee, and marketing costs.

It adds that expanding insurance access could save the government approximately US$ 10 billion annually by covering underserved populations and events, reducing the need for ex-gratia payments to families affected by loss of life or livelihood.

“Targeted intervention programmes for crop insurance could contribute to minimizing crop losses, reducing loan defaults and improving yield,” it noted.

McKinsey also highlights that, although claims ratios have declined, rising expense ratios among traditional players have pushed the combined ratio upward. “Improvement in leading productivity metrics, such as operating expenses per life or policy, has been negligible over the past two to three years for both life and general insurance companies,” McKinsey said.