Economic Survey 2026: Cutting distribution costs is key to making insurance affordable and expanding reach

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• High distribution and acquisition costs keep insurance expensive and limit reach
• Insurers' profits are flat due to rising costs despite strong topline growth
• Digitising distribution can lower costs and make insurance more affordable

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India’s insurance sector's biggest change is simple but structural: reducing high distribution and acquisition costs, according to Economic Survey 2026.

Unless these cost inefficiencies are dismantled, insurance will remain expensive for customers and limited in reach, despite the sector’s strong balance sheets and financial stability, the report says.

For years, the industry has operated in what can be called a “low-penetration, high-cost” model.

Insurance companies are financially strong and well-capitalised, but the cost of selling insurance is too high, the report flags. Expensive distribution channels, heavy commissions, and inefficient acquisition models have pushed up the price of protection. This has made insurance less affordable for large sections of the population, keeping penetration low even as the industry grows in size.

In the life insurance segment, private insurers are showing healthy topline growth, but profits are not growing at the same pace. Rising acquisition expenses are eating into margins, leaving net profits largely flat.

Simply put, insurers are selling more policies, but earning proportionally less from them because it costs too much to acquire each customer.

The non-life insurance sector faces a similar challenge, according to the report.

High combined ratios mean that underwriting operations are not generating enough profits on their own. To stay profitable, insurers are increasingly relying on investment income to support their core business. This strategy is risky, as it makes profitability dependent on capital market performance rather than on the strength of insurance operations themselves.

The solution lies in rationalising acquisition and distribution costs, the report suggests.

Digitising distribution, through direct platforms, embedded insurance, partnerships with fintechs and platforms, and technology-led sales models, can significantly reduce the cost of reaching customers. Lower costs would allow insurers to price products more accurately, offer better value to policyholders, and make insurance more affordable.