Life Insurance: New Biz Premiums Of Insurers Falls In February, LIC Sees Major Drop

India’s life insurance industry has faced another tough month in February 2025, with new business premiums dropping by almost 12 per cent year–on-year. This notes the fourth consecutive month of premium decline since the new surrender value guidelines came into effect in October 2024.

As per the data released by the Insurance Regulatory and Development Authority of India (Irdai), the total new business premium (NBP) for the life insurance sector stood at Rs 29,985.58 crore last month. This was a fall from Rs 33,913.18 crore NBP recorded in the same period last year.

Such a fall in the NBP is not happening in isolation, another report by Irdai last year showed that the penetration of life insurance in India has also seen a decline. In the financial year 2024, the country's overall insurance penetration plunged to 3.7 per cent as compared to 4 per cent in FY23. The life insurance penetration declined to 2.8 per cent (in FY24) from 3 per cent in the previous year.

NBP Decline Across Industry

This decline was largely driven by Life Insurance Corporation of India (LIC) which saw the steepest drop by 22 per cent in its monthly premium collections. The collections fell from Rs 19,875.98 crore a year ago to Rs 15,513.95 crore.

While LIC struggled to garner NBP, private life insurers also showed a mixed performance. The private players recorded a modest 3 per cent year-on-year growth in NBP collections, reaching Rs 14,471.62 crore in February.

Performers in the ‘Green’

This is how some major insurers fared in February 2025;

- HDFC Life posted a 24 per cent growth in NBPs, collecting Rs 3,213.76 crore

- ICICI Prudential Life Insurance also recorded a 5 per cent increase with premium collections at Rs 1,857.05 crore

- Bajaj Allianz Life Insurance managed a 3 per cent growth, bringing its total to Rs 1,080.33 crore

Performers in the ‘Red’

On the other hand, other players like;

- SBI Life Insurance reported an 18 per cent decline, falling to Rs 2,174.53 crore

- Ageas Federal Life saw a 27 per cent decline with NBP collection of only Rs 121 crore as compared to Rs 168 crore in the previous year

Why did LIC see the biggest drop?

When the insurance regulator rolled out new surrender value norms last year which came into effect on October 1, 2024, many media reports attributed the subsequent decline in LIC’s profit to this industry shift. However, Siddhartha Mohanty, LIC’s MD and CEO, noted that the ‘insurer has realigned its commission structure, product designs and policy covers to ensure that agent commissions are not impacted even as margins remain intact.’

A surrender value is the amount that insurers pay to policyholders when the latter decides to terminate their policy before maturity. The new norms have eased exit payouts and reduced the amount deducted by insurers as ‘surrender charges’ based on the plan's terms.

Additionally, the eligibility for surrender value has been extended to policies surrendered within one year, compared to the earlier two-year threshold. While these changes benefit policyholders, they have resulted in insurers recalibrating their strategies, including reducing first-year agent commissions and clawing back commissions if policies are surrendered within the first two years.

To comply with these new regulations, LIC had to revamp its product design offerings and adjust its commission structure. However, despite these efforts, LIC’s premium de-growth worsened in February following a 14 per cent YoY decline in January. Its 11-month FY25 premium grew 2 per cent YoY. Total APE dropped 23 per cent YoY, while retail APE fell 17 per cent YoY.

Fewer Policies Sold

Another downturn for the life insurance sector is a decline in the number of policies sold in addition to lower premium collections.

Life insurers issued around 1.9 million policies in February 2025, down from 2.2 million in the same month last year. Such a decline could mean that customers might be more hesitant to purchase new policies, the reasons behind the same could vary - from affordability to lack of awareness. LIC saw a 30 per cent decline in the number of policies sold last month, and a 10 per cent decline since the same period last year.

The industry however is focusing on tweaking their product portfolios and revised commission structures with the recent changes in regulatory norms.