Summary of this article
Insurance penetration slips, threatening “Insurance for All” goal
Tax incentives needed to revive insurance and health cover
Large disaster protection gap calls for public-private solutions
Pension coverage remains limited, reforms needed to expand reach
India’s insurance and pension landscape needs stronger policy support to deepen financial security and long-term savings, according to SBI Research, which has flagged slowing insurance penetration and gaps in pension coverage as key areas for reform.
In the insurance sector, penetration has slipped to 3.7 per cent in FY25 from 4 per cent in FY23 and 4.2 per cent in FY22, according to SBI Research. Life insurance penetration declined to 2.7 per cent, while non-life insurance remained at 1 per cent. SBI Research notes that the fall is largely due to a decline in life insurance penetration, raising concerns around the Insurance Regulatory and Development Authority of India’s (IRDAI) long-term goal of “Insurance for all by 2047.”
To revive momentum, SBI Research expects the government to consider tax incentives. It suggests that, in line with the NPS deduction under Section 80CCD(1B), a separate deduction for term and health insurance could be introduced in the new and old tax regimes, for instance, Rs 25,000/50,000. Alternatively, the existing Section 80D deduction could be included in the new tax regime, says SBI Research.
Consumer experience is another pressure point. As per IRDAI data cited by SBI Research, there has been a significant rise in complaints during FY25, and around 69 per cent of these grievances were related to claims. This, SBI Research says, underlines the need to reform the health insurance sector so that policyholders are better able to receive claims.
SBI Research also points to the rising intensity and frequency of natural calamities, especially cyclones. Data for 1991–2025 show a protection gap of around 93 per cent, suggesting the need for “early intervention to reduce the protection gap by creating a public-private solution or Disaster Pool for natural disaster risk involving the insurance sector.”
On pensions, SBI Research believes that as India undergoes a demographic shift, a minimum pension guarantee and a well-structured pension system for all, including informal workers, is essential to ensure basic financial security. It notes that out of around 24 lakh central government employees, only around 1.2 lakh have enrolled for the Unified Pension Scheme launched on April 1, 2025. As per SBI Research, there is a need to expand coverage to state government and PSU (public sector unit) employees as well.
Similarly, as per SBI Research, the NPS Vatsalya scheme, launched on 18 September 2024, had only around 1.3 lakh subscribers till August 2025. It suggests pushing the scheme by increasing deduction limits under Section 80CCD(1B) for NPS contributions.
It also calls for revamping Employees Provident Fund Organisation (EPFO) in line with NPS through technology adoption, uniform tax treatment across products such as insurance, annuities and unit linked insurance plans (ULIPs), mandatory NPS deductions for private sector employers above thresholds like 100/200 employees, and interoperability between EPFO and NPS subscribers.
