GST exemption may squeeze India’s life insurers’ FY 2026 margins

Also, recent regulatory changes are expected to have mixed effects.

India’s life insurance premiums are expected to remain on a steady growth path over the next two years, supported by regulatory changes, rising coverage, and deeper private-sector participation, according to a report by CareEdge Ratings.

The rating agency expects the life insurance industry to grow at a compound annual growth rate of 8% to 11% in FY 2026 and FY 2027. 

The life insurance market accounted for about 74% of total premiums in FY 2025.

Growth has increasingly been driven by private insurers, whose premiums expanded at a CAGR of 21.7% between FY 2005and FY 2025, compared with 9.8% for the state-owned Life Insurance Corporation of India (LIC). 

CareEdge noted that insurance penetration in India remains low at 2.8% in FY 2023, compared with an average of 5.6% in developed economies, indicating room for further expansion. 

Insurance coverage has increased sharply, with the number of lives covered rising from around 15 crore in FY15 to nearly 40 crore in FY 2025, largely driven by group and credit-linked insurance. 

However, the report pointed out that low sums assured and limited pension and annuity coverage mean that mortality and longevity risks remain largely unaddressed.

CareEdge said the rollout of the Bima Sugam digital platform and broader implementation of the Bima Trinity are likely to support this recovery by improving access and service delivery.

Recent regulatory changes are expected to have mixed effects. The increase in the foreign direct investment limit to 100% gives insurers additional room to raise capital, supporting growth and solvency. 

At the same time, a full exemption of goods and services tax on life insurance premiums could compress margins in FY 2026, as insurers lose access to input tax credits. 

CareEdge said companies may respond through commission cuts or pricing adjustments, although the exemption could improve affordability and support demand over the longer term.

CareEdge said medium-term prospects for the sector remain stable. However, it flagged risks from higher-than-expected mortality, large catastrophe events, and volatility in interest rates and equity markets, which could affect profitability.