Why India Needs 1,000 Insurance Companies for Sustainable Economic Growth

Dr. Tapan Singhel
MD & CEO, Bajaj Allianz General Insurance Co. Ltd.
Chairman, General Insurance Council

Pune, 11th March 2025: Prime Minister Narendra Modi recently addressed the Post-Budget Webinar on Employment via video conferencing, emphasizing the theme “Investing in People, Economy, and Innovation” as the roadmap for Viksit Bharat. He highlighted how this year’s budget serves as a blueprint for India’s future, prioritizing investment in infrastructure, industries, human capital, and innovation. He urged all stakeholders to invest in capacity building and talent nurturing, essential for the country’s economic progress and success.

During the session, I highlighted a crucial point for our nation. While we discuss FDI and insurance penetration, we must recognize that if India aspires to become one of the world’s largest economies by 2047, our current growth rate, though promising, remains insufficient. Growth can be accelerated by creating new avenues, but another vital approach is addressing what I call the “leaking bucket.” I presented a paper outlining how India could achieve an additional 3-4% GDP growth simply by addressing these leaks.

Addressing the “Leaking Buckets”

1. Catastrophic Losses & MSME Coverage: Currently, 90% of catastrophic losses and damage to MSMEs remain uninsured. Even government funding fails to bridge this gap. A World Bank study estimates that India loses 2% of its GDP annually due to these uninsured risks.
2. Universal Health Coverage: Lack of universal health coverage results in a 1.5% GDP loss, with 10 crore Indians falling below the poverty line due to healthcare expenses. Comprehensive insurance coverage for individuals and industries could significantly impact GDP growth.
3. Insurance Industry Capacity: With only 73 insurance companies in India compared to over 6,000 in the U.S., the sector lacks the depth needed to meet India’s potential. Expanding this to at least 1,000 companies could accelerate insurance penetration and economic resilience.

Encouraging FDI in Insurance

Despite the government increasing the FDI limit to 74%, foreign insurers have been slow to enter India. Conversations with global insurance CEOs revealed several key challenges:

• Lack of Awareness: Many global insurers are unaware of India’s reforms and the relatively low cost of setting up an insurance business (around $12 million).
• Limited Promotion: The Invest India and NITI Aayog websites do not actively promote insurance as an investment sector. A targeted outreach to the world’s 10,000 insurance companies could attract significant interest.
• Regulatory Constraints: Excessive regulatory scrutiny, slow profitability, and high capital requirements deter investment, as seen in the exits of major insurers from markets like the UAE.

Key Reforms to Unlock Growth

1. Tiered Licensing for Insurance Companies: India has around 2,000 banks with different licensing tiers, but only a single licensing structure for insurance companies. Adopting a tiered approach can enhance accessibility and competition.
2. Expanding Value-Added Services: Unlike in European markets, Indian insurers are restricted to selling pure insurance products. Allowing value-added services would shift insurance from a push product to a customer-centric solution.
3. Liberalizing Distribution Channels: A more open distribution framework would encourage competition and innovation.
4. Dividend Repatriation & Capital Flexibility: Foreign reinsurers currently face difficulties repatriating profits despite meeting solvency requirements. Addressing this issue can enhance investor confidence.
5. Reducing GST on Insurance: At 18%, GST on insurance is high, treating it as a luxury rather than a necessity. Lowering GST could drive wider adoption and benefit economic stability.
6. Setting Up an Insurance SEZ: A dedicated insurance Special Economic Zone (SEZ) would attract foreign players, similar to initiatives in other industries.
7. Encouraging InsurTech Investments: Current regulations prevent insurance companies from investing in startups or InsurTech ventures. Reforming investment norms would foster innovation in the sector.
8. Easing Initial Compliance for New Entrants: A three-year relaxation in rural and third-party obligations for new insurance companies would encourage more players to enter the Indian market.

The Road Ahead

India has the potential to support at least 1,000 insurance companies, significantly boosting GDP growth and economic resilience. However, to achieve this, regulatory simplification, targeted FDI outreach, and structural reforms are necessary. If these changes are implemented, India could become a global insurance powerhouse, attracting investment, enhancing financial security, and accelerating economic growth.

If we take these steps, we will not only strengthen our economy but also create a robust, well-insured India.