Union Budget 2026: Insurance sector's key demands for growth
What's the story
India's insurance sector has witnessed significant growth over the past decade, thanks to regulatory reforms, digital acceleration, and increased financial awareness. However, despite this progress, the industry's penetration remains low at just 3.7% of India's GDP. The Insurance Regulatory and Development Authority of India (IRDAI) has been instrumental in this growth through a series of phased structural reforms.
Regulatory reforms
IRDAI's role in insurance sector growth
The IRDAI has played a pivotal role in the growth of India's insurance sector with its regulatory reforms. The introduction of the "use and file" product regime in 2016 was one such measure that accelerated product innovation. Other recent reforms include simplified licensing and registration norms introduced in 2024, which have eased market entry and capital access for insurers.
Future outlook
IRDAI's future plans and current challenges
The IRDAI has also expressed its intention to transition toward a principle-based risk-sensitive solvency framework, signaling a shift in supervisory philosophy. However, despite these advancements, the sector's overall penetration in India remains low at 3.7% of GDP against a global average of over 7.3%. The protection gap, especially in health, life and catastrophic events, continues to be significant.
Sector demands
Key demands from the insurance sector for Union Budget 2026
The insurance sector has made three key demands for the upcoming Union Budget. These include a composite licensing framework to optimize resource utilization and enhance risk management, rationalization of GST on insurance agent commissions and distribution expenses, and a risk-based capital framework that aligns capital requirements with a company's risk appetite.
Recommendations
Policy recommendations for the upcoming Union Budget
The insurance sector has also made some policy recommendations for the upcoming Union Budget. These include incentivizing climate and parametric insurance with a sovereign reinsurance backstop or co-funding guarantee, lowering entry barriers for new and niche insurers by introducing a tiered capital requirement regime, and promoting data, tech, and skill ecosystem development through R&D incentives to insurers adopting AI, IoT.