How insurance became the seventh most profitable sector in the BT500 list despite thin margins 

If Chinese private sector insurance giant Ping An Insurance were a bank, its $158 billion revenue would place it alongside UK banking giant HSBC and Spain’s Santander, and ahead of Royal Bank of Canada. Though it matches investment banking giant Goldman Sachs with assets of $1.77 trillion, its $17.6 billion profit is well below HSBC’s $22.97 billion and other banks with similar scale. This explains the nature of the insurance business—lower leverage, higher claims, limited product suite, and modest investment yields, all of which keep margins lower than in banking.

In India, things are no different. Despite this, insurance was the seventh-most profitable sector in FY25, with profits of listed players rising 16% to Rs 65,255 crore. The biggest, LIC, outshined at the 6th spot in the BT500 list, though its annual profits were lower than ICICI Bank’s and only half the country’s largest bank, State Bank of India. These challenges, and the fact that India has less than a dozen listed insurers, is reflected in contribution of the insurance sector to BT500, which was just 3.93%. Experts, though, say this is likely to rise if insurers can keep up the kind of growth they reported in FY25.

No Growth Blues

New-age insurer Go Digit General Insurance, backed by Canada-based Fairfax Group led by Prem Watsa, posted an impressive 133% growth in net profit to Rs 425 crore, driven by better returns on assets under management. ICICI Prudential Life Insurance recorded a 39.4% increase to Rs 1,186 crore, supported by higher investment income. ICICI Lombard General Insurance also delivered a strong performance, with profits rising 30.7% to Rs 2,508 crore, supported by higher premium income from retail segments. Star Health and Allied Insurance disappointed with a 23.6% drop in net profit to Rs 646 crore, mainly due to higher claims and margin pressure. State-owned New India Assurance’s profit slid 32.2% to Rs 972 crore owing to weaker core underwriting performance.

The biggest of them all, LIC, reported a PAT of Rs 48,320 crore, seven times GIC’s and 20 times SBI Life’s, backed by nationwide network, brand trust, government support and response to competition from the private sector in new products and categories. From conventional, savings-oriented policies, it has started focusing on non-participating products with long-term guaranteed returns, term insurance and unit-linked plans that offer higher margins.

“LIC’s capital efficiency, when compared to private sector peers, presents a mixed picture. The company performs well in ratios like capital-to-total assets and capital-to-technical reserves, suggesting a strong reserve base to meet claims. However, private insurers have better solvency ratios and more liquid assets,” says Vineet Agarwal, Head of Insurance, PL Capital, a financial services provider. “The reformed product strategy is being coupled with a positive intent to develop bancassurance and direct marketing channels, key to the growth of private insurers,” says Agarwal.

Non-life (general insurance) and health insurance segments have underperformed life insurance in profitability. General insurance’s performance is closely linked with the economy for segments such as motor, fire and marine. It also depends largely on one-year products, faces pricing pressure (unlike life insurance, which is a long-term product), and has to offer a lot of product options. These impact profitability. “This is particularly evident in motor insurance where intense competition and cap on third-party premiums put sustained pressure on margins,” says Sandeep Dadia, CEO & Country Head at Lockton India, a privately held insurance brokerage firm. He says underwriting losses remain high, especially in health, where risk is often underpriced and claims costs are rising.

Standalone Health

Health insurance is the fastest-growing segment in India. In fact, the country now has over half-a-dozen standalone health insurers. They are projected to grow 21% in FY26 compared to general insurers’ 13% growth, says Lockton India. “Their focused approach allows for better product innovation, deeper distribution networks, and more agile claim and wellness management,” says Dadia. According to Agarwal, standalone health is seen as a high-growth specialised segment. “While some standalone health insurers have accumulated losses, the market is now viewing them with greater optimism due to strong premium growth and focus on retail health. Investors are willing to bet on their ability to capture a larger share of the fast-growing market,” he says.

Valuation Puzzle

Market experts say life insurance players, particularly those with a strong bancassurance model and consistent growth in protection and non-par products, continue to command premium valuations owing to their long-term profitability and predictable cash flows. In both general and health insurance segments, valuations have been more modest relative to life insurance due to underwriting challenges, regulatory pricing, and lower return ratios. “Non-life is perceived as a high-growth, low-margin business. Investor sentiment is influenced by the motor and health business,” says Agarwal.

But the scenario is shifting with rising awareness, deeper digital penetration, and IRDAI’s push for insurance inclusion. “Investors are beginning to appreciate the potential for long-term value creation in these segments as well,” says Dadia.

New-Age Tech Insurers

While legacy players have high costs due to old IT systems, aging workforce, and manual processes, the new-age players are adopting technology extensively with a focus on innovative products, transparency, and speed of transactions. “This direct-to-consumer model bypasses traditional intermediaries, lowering acquisition costs and allowing for more competitive pricing. They are also adept at using data analytics and artificial intelligence to offer personalised products and more accurate risk assessment, which can lead to better underwriting performance and reduced claim ratios,” says Agarwal of PL Capital.

GoDigit has shown significant growth in a short span and is ranked 402. Its business model, heavily reliant on technology and digital distribution, has been a key driver of growth. “However, its long-term prospects hinge on its ability to transition from a growth-oriented phase to sustained profitability,” says Agarwal.

“Some (new-age players) have attracted significant financial capital on promise of digital disruption and distribution innovation, but sustaining those valuations depends on their ability to demonstrate underwriting discipline and scalability. Investors today are more focused on profitability and regulatory alignment rather than just top-line growth, and as the sector evolves, we’ll likely see more rational valuations, driven by fundamentals over hype,” says Dadia.

The Road Ahead

India’s insurance industry has a long runway for growth due to under-penetration. LIC continues to dominate life insurance with its traditional product suite. The profitability of companies, especially general insurers, is challenged by pricing pressure and rising claims. The new-age players in general and health segments have raised hopes for the sector’s expansion but will need capital support to scale up operations. The coming decade will bring more innovation, disruption, and, hopefully, profitability.