India’s first-year premiums contraction eases in September

The month recorded a 15.5% drop, smaller than the 18.5% in August.

After experiencing strong growth in FY23, first-year premium numbers in September 2023 saw a 15.5% year-on-year (YoY) decline, an improvement from the 18.5% (YoY) drop in August, CareEdge reported.

In September, non-single premiums increased by 11.4% (YoY), a notable improvement compared to the 5.7% (YoY) reported in September 2022. 

On the other hand, single premiums continued to decline, falling by 24.5% (YoY) in September, contrasting with a 21.7% (YoY) increase in September last year. This decline in single premiums is primarily attributed to LIC, whereas private players have reported some growth, although it has been relatively subdued.

Despite the decline in single premiums, they still make up a significant portion of the overall first-year premiums.

Several factors contributed to this decline, including a substantial reduction in group premiums, especially from LIC, the introduction of a new tax regime, and the significant momentum experienced in March 2023. 

Private insurance companies helped offset the dip in LIC premiums to some extent. Although private insurers continued to grow, their growth rate was slower compared to the previous year.

In addition, the first-half new business premiums of life insurers in FY24 reported a 13% (YoY) drop compared to the 37.9% (YoY) growth in H1FY23. 

The YoY decline can be attributed to group premiums, primarily single premiums and LIC, while private insurers grew in the individual segment.

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Forecast

In FY23, life insurance companies experienced substantial top-line growth due to factors like the absence of COVID-related constraints for a full year, growth in the non-participating (non-par) segment in the last quarter of FY23, and an increase in term policies (protection plans). 

The demand for annuity products in the short term, along with cost management practices, bolstered the sector's financial outlook.

However, the imposition of the new tax regime, effective from April 1, 2023, had visible implications on the sector's activities in the first half of FY24, resulting in a contraction in the New Business Premium.

Life insurance companies are expected to make strategic adjustments to their policy portfolios to promote growth, albeit at a more measured pace in FY24. 

As the sector adapts to regulatory changes, monitoring the potential growth in FY24 will be crucial. Companies will need to increase their sales volume as high-value policies become less attractive due to the new tax regime. 

Despite these temporary fluctuations, the long-term growth potential of the life insurance sector remains strong, driven by factors such as the existing protection gap in the market, a regulatory framework supporting industry development, and the continued need for insurance provisions.

CareEdge believes that the long-term trajectory for growth in the life insurance sector remains positive.