Capital rules force Indian insurers to curb aggressive discounting

Aggressive discounting for short-term market share becomes harder to justify.

India’s life insurers are expected to rethink how they price and sell policies as tougher capital rules make it harder to push high volumes through deep discounts, according to a senior bancassurance executive.

“Under a risk-based capital regime, aggressive discounting for short-term market share becomes harder to justify if it leads to undue strain on capital,” Soly Thomas, chief distribution officer for bancassurance at Canara HSBC Life Insurance Company Ltd., told Insurance Asia.

The shift is expected to weigh most on savings and guaranteed products, which tend to tie up capital for long periods. Insurers may become more selective about which guarantees they offer and how prominently such products are marketed, since pricing will need to better reflect the long-term risks involved.

For insurers that rely heavily on bank distribution, the change could also reshape how banks are paid and incentivised.

Commissions and sales targets may be adjusted as insurers place greater emphasis on capital efficiency and product sustainability, Thomas said.

“The shift to a risk-based capital framework is one of the most important structural reforms for the industry in this decade,” he said. “It will fundamentally change how we think about balance sheet strength, not just headline growth.”

The move comes as India’s life insurance sector continues to expand, though competition and product design are evolving.

CareEdge Ratings expects life insurance premiums to grow at an annual pace of 8% to 11% in the next two years, supported by policy reforms, broader coverage, and rising participation by private insurers.

Life insurance made up about 74% of total insurance premiums in 2025, CareEdge said. Growth was led by private insurers, whose premiums expanded faster than those of the state-run Life Insurance Corp. of India over the past two decades.

Private players tend to compete more aggressively on pricing, product features, and bank partnerships, making them more exposed to rules that tie capital more closely to risk.

From a product standpoint, Thomas said insurers are likely to favour simpler designs that are easier to support over time.

"Risk-based capital encourages insurers to favour designs that are capital-efficient, transparent, and genuinely aligned with customer needs," Thomas said. "Long-duration guarantees or complex structures that consume disproportionate capital will come under more scrutiny."

As a result, customers may see fewer heavily guaranteed products being pushed, and more focus on protection and retirement planning.

Thomas said growth is likely to centre on products that meet customer needs without placing excessive strain on insurers’ balance sheets.

“Pure protection, retirement-oriented solutions, and well-constructed savings products with appropriate risk-sharing will become more central to product strategy,” he added.

This echoes concerns raised by CareEdge, which said key risks remain under-covered despite rising headline coverage.

Whilst more people now have some form of life insurance, many policies carry low sums assured or offer limited pension and annuity benefits, leaving long-term risks inadequately addressed.

Insurance penetration in India remains low at about 2.8% of gross domestic product, well below levels in developed markets. At the same time, the number of lives covered rose sharply to almost 400 million in 2025, driven mainly by group and credit-linked policies.

The stricter capital approach also places greater emphasis on how insurers manage their investments against long-term promises to policyholders.

Insurers will need a much clearer view of what is driving capital use, whether that’s interest rates, customer behaviour, or market movements, Thomas said.

The changes could be positive for bancassurance players. Strong bank partnerships can support better-quality sales and higher policy retention, helping insurers build more stable books of business over time.

Recent policy measures, including the removal of tax on individual life insurance premiums, have also improved affordability, supporting demand and customer value.

“You also improve persistence because customers feel they are getting more value for every rupee of premium paid,” Thomas said.