Q1 FY26 life insurance preview: Product mix reset, digital shift among key trends to watch

However, it is largely skewed toward unit-linked insurance plans (ULIPs) — hybrid financial products that combine life insurance coverage with market-linked investment, where a portion of the premium goes toward life cover and the rest is invested in equity or debt funds based on the policyholder’s preference.

HDFC Securities expects life insurers to begin reconfiguring their product mix and offer more traditional participating (PAR) and non-participating (NPAR) savings products.

This trend is already visible in FY25 disclosures from HDFC Life and ICICI Prudential Life, both of which have been reducing their dependence on ULIPs over the last few financial years.

For instance, in FY25, ULIPs constituted just around 26 percent of HDFC Life’s retail APE mix and 31 percent for ICICI Prudential Life, compared to over 50 percent in FY22, as both insurers shift focus toward higher-margin non-par and protection products.

Variable Agency Channel likely to gain traction

Parallelly, the HDFC Securities report noted that the Variable Agency Channel (VAC) is also expected to gain significant traction as insurers look to balance cost control with deeper market reach.

VAC is a low-cost, performance-driven distribution model that enables insurers to expand efficiently into Tier-3 and rural geographies by deploying agents who operate on minimal fixed pay and variable incentives.

Unlike the traditional agency model, which comes with high supervisory overheads and slower scalability, VAC offers a leaner structure with higher productivity per agent and better alignment of incentives.

SBI Life, which has been at the forefront in improving operating efficiency and rural penetration, is actively adopting VAC to grow its footprint in underserved markets.

Company-wise performance on key profitability metrics

HDFC Securities reported that SBI Life is expected to remain the standout performer, with VNB (Value of New Business) margins forecast at 28.2 percent in FY26 (versus 28.0 percent in FY25), the highest among peers. Its Operating Return on Embedded Value (RoEV) is projected at 20.2 percent (21.8 percent in FY25), indicating highly efficient capital deployment and profitability.

RoEV measures the profitability of an insurer’s core operations, excluding market movements and one-offs, as a percentage of its embedded value.

ICICI Prudential Life is expected to post VNB margins of 22.8 percent in FY26 (flat versus FY25) and an RoEV of 12.4 percent (13.7 percent in FY25), not as strong as SBI Life, but still stable.

HDFC Life, while continuing to focus on product diversification and digital scale-up, is expected to report VNB margins of 28.2 percent in FY26 (27.8 percent in FY25) and an RoEV of 17.6 percent (21.8 percent in FY25).

Meanwhile, LIC remains a laggard on profitability metrics, with VNB margins at 17.6 percent in FY26 (flat versus FY25) and RoEV at 9.8 percent (versus 11.4 percent in FY25), reflecting continued challenges in improving product mix and operational efficiency.

In terms of APE (Annual Premium Equivalent) growth, HDFC Life is forecast to lead with a growth rate of 14 percent in FY26 (12.2 percent in FY25), followed by ICICI Prudential Life at 12 percent (13.3 percent) and SBI Life at 11.4 percent (12.2 percent).

In contrast, LIC is expected to grow at just 1 percent versus a contraction of 0.6 percent in FY25.

Expense of management norms to weigh on profitability

Expense of Management (EOM) compliance under IRDAI norms is expected to weigh on Q1 profitability for some players, the HDFC Securities report said.

Insurers are navigating stricter EOM caps introduced in FY24, which limit the proportion of premium that can be spent on commissions and operational expenses. This has led to margin pressure, particularly for insurers with high-cost agency channels or aggressive new business sourcing.

The report said players like LIC, which rely heavily on traditional agency models, may feel the pinch more acutely, while digitally agile insurers such as SBI Life and HDFC Life may be better positioned to absorb these constraints.

Rise of digital marketplaces reshaping sales funnels

According to HDFC Securities, the marketplace-led model is expected to gain even more traction through FY26 and FY27, particularly as life insurers strive to reduce their dependence on high-cost, agency-heavy distribution channels and comply with the IRDAI’s EOM norms, which cap how much insurers can spend on commissions and operational expenses.

In the context of Q1 FY26, as insurers begin to reflect the cost impacts of EOM regulation and seek ways to maintain or grow their margins, their increasing pivot to digital platforms could prove timely.