Union Budget 2026: Expectations of the insurance industry

Budget expectations from the insurance sector 2026

• India's insurance sector grew with reforms, but penetration is still 3.7% of GDP.
• Key requests: composite licensing, GST rationalization, risk-based capital norms
• Budget urges climate insurance, tech adoption, and health claims transparency

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Over the past decade, regulatory liberalisation, digital acceleration and heightened financial awareness have combined to contribute to the consistent growth visible in India’s insurance sector.

Investments have quadrupled, and total premium growth has gone up from Rs 7.6 lakh crore in FY20 to Rs 11.9 lakh crore in FY25, per the Insurance Regulatory and Development Authority of India’s (IRDAI) annual reports. The IRDAI has played a central role in this expansion through a series of phased structural reforms.

Foundational measures such as the introduction of the “use and file” product regime in 2016 accelerated product innovation. More recent reforms include simplified licensing and registration norms notified in 2024 that reduces prior-approval requirements and the 2025 liberalisation of FDI to 100 percent, have materially eased market entry, capital access and enhanced operational flexibility for insurers. These measures, reinforced by inclusion-led initiatives such as the Bima Trinity and a calibrated move towards International Financial Reporting Standards (IFRS)-aligned reporting through Ind AS 117 have helped safeguard policyholder interests.

In parallel, IRDAI has articulated its intent to move towards a principle based risk-sensitive solvency framework-signalling a shift in supervisory philosophy, even as formal implementation timelines are yet to be announced. Despite this progress, the sector’s overall penetration in India remains modest, contributing to 3.7 percent of the country’s GDP, compared with a global average of over 7.3 percent, per IRDAI.

The protection gap, particularly in health, life and catastrophic events, remains substantial. Rapid digitalisation and the government’s “Insurance for All by 2047” vision are setting the stage for a broader inclusion drive, yet several operational and policy bottlenecks constrain faster adoption.

Ask #1: Composite insurance licensing framework

Expediting IRDAI’s composite licensing regime, which allows for life, non-life and health segments under a unified license, is essential. It will help optimise resource utilisation, reduce Expenses of Management (EoM), allow cross-sell opportunities and better overall risk management. As India moves forward, the framework should be complemented by clear prudential safeguards, including fund segregation and calibrated capital adequacy norms. Per an article by Global Business Law Review, it draws on global precedents such as Singapore and the Philippines to prevent cross-subsidisation and strengthen solvency discipline.

Ask #2: Rationalisation of GST and Tax Benefits

Specific measures include exempting or providing a zero-rate GST on insurance agent commissions and allowing a full Input Tax Credit (ITC) on distribution expenses. Additionally, introducing enhanced deductions for term and health insurance under Section 80D, or ideally a new section altogether for all insurance premium-related benefits across life, general, and other types, would be helpful.

It will lead to reduced operational costs, improved agent viability, potentially enhance coverage for policyholders and enhanced uptake of protection products.

Ask #3: Risk-based capital framework

It is imperative to allow the capital requirement to be based on the company’s risk appetite. If a company wants to focus solely on micro-insurance and affordable products for rural and semiurban areas, it needs calibrated capital incentives and corporate rebates. India can mitigate emerging risks through talent development, InsurTech adoption and early-warning systems inspired by global models, such as the Philippines’ RBC 2 and South Africa’s risk-tiering, building a robust Risk-based Supervision (RBS) that ensures solvency and trust, key enablers of IRDAI’s “Insurance for All”2047 vision.

In addition to the expectations, here are a few policy recommendations for the upcoming Union Budget:

Recommendation #1: Incentivise climate and parametric insurance

Establish a sovereign reinsurance backstop or co-funding guarantee for pilot schemes in climate-linked or parametric insurance, covering weather and disaster risks. This move may de-risk insurers entering new lines, reduce the fiscal burden on post-disaster relief and enhance resilience in the agricultural and coastal sectors.

Recommendation #2: Lower entry barriers for new and niche insurers

Introduce a tiered capital requirement regime for micro and digital-only insurers and offer transitional capital subsidies to new entrants. This will increase competition, drive product innovation and provide targeted insurance solutions for rural and emerging risk categories.

Recommendation #3: Promote data, tech and skill ecosystem development

Allocate R&D incentives to insurers that adopt AI, IoT and alternative data for underwriting and fraud detection. Also, create a joint public–private Insurance Data Exchange Hub integrating IIB, Electronic Health Record (EHR) data and lifestyle datasets under a privacy-preserving architecture. Moreover, introduce scholarships and tax credits for core insurance ops, actuarial and analytics training programmes. These actions may strengthen the talent base, improve risk pricing, increase consumer trust and create a globally competitive InsurTech landscape.

Recommendation #4: Health claims oversight and pricing transparency

Empower IRDAI to have an oversight on hospital pricing and integrate the National Health Claims Exchange (NHCX) with direct audit trails. Push the insurance companies and hospitals to do a faster settlement, introduce penalties if needed. Overall, continue the faster claims settlement drive and build trust and transparency in the system. This will certainly enhance policyholders experience and trust in the system. Also, it might lead to a reduction in medical inflation, sustainable health insurance premiums and greater transparency in the claim’s ecosystem.