MC EXCLUSIVE Credit-life policies fall 30% in FY25 for top life insurers, as they pull back from MFI market

Insurance policy

India’s top 4 private life insurers have sharply reduced their group insurance operations, reporting a 30 percent year-on-year decline, nearly double the overall industry contraction of 16 percent.

According to multiple sources familiar with the matter, this pullback is being led by a retreat from group credit life insurance, a product typically bundled with microfinance institution (MFI) loans that waives outstanding dues in case the borrower dies.

Regulatory filings under Forms L-37 and L-28, which track the number of lives insured, show that major players such as HDFC Life Insurance, ICICI Prudential Life Insurance, SBI Life Insurance, and Bajaj Allianz Life Insurance have significantly cut their exposure to this product category in FY25.

Form L‑28 is a quarterly life-insurance disclosure filed with the Insurance Regulatory and Development Authority of India (IRDAI). It reports details on unit-linked business, including NAVs for various ULIP (Unit Linked Insurance Plan) funds. Form L‑37 is also filed quarterly, covering group business acquisition by channel, meaning how many group policies (lives covered) were obtained through banks, brokers, and other intermediaries.

An official at one of the companies, requesting anonymity, attributed the move to rising mortality claims and worsening asset quality in the microfinance sector. “The high-risk borrower pools and increasing claims have made it difficult to sustain large-scale credit life portfolios,” the official said.

Moneycontrol had earlier reported on a post-COVID spike in mortality claims, alongside a decline in the number of lives covered by insurers.

HDFC Life, SBI Life, ICICI Prudential, and Bajaj Allianz Life did not respond to Moneycontrol’s queries.

The premium data further supports the trend, underscoring the scale of the retreat by insurers from group segments.

HDFC Life Insurance saw its group New Business Premium (NBP) drop from Rs 11,960 crore in FY24 to Rs 8,970 crore in FY25, a 25 percent decline. ICICI Prudential Life Insurance reported a 28 percent fall, from Rs 7,200 crore to Rs 5,184 crore. SBI Life Insurance’s group NBP declined by 30 percent, from Rs 15,200 crore to Rs 10,640 crore. Bajaj Allianz Life Insurance reported a 23 percent fall, from Rs 7,840 crore to Rs 5,880 crore.

As a result, the number of lives covered by these companies has also decreased.

HDFC Life covered 6.6 crore individuals in FY24, which dropped to 4.9 crore in FY25. ICICI Prudential declined from 5.5 crore to 4.1 crore; Bajaj Allianz, from 2.1 crore to 1.7 crore; and SBI Life, from 3.7 crore to 2.5 crore. This leads to a cumulative number of

In total, these four insurers have seen a combined decline of 4.7 crore insured lives from 18 crore in FY24 to 13.3 crore in FY25, marking a 25 percent fall.

This drop translates into a significant decline in household coverage.

A source also said, the IRDAI may step in considering the sharp fall in credit life policies seen in FY25.

“The IRDAI is considering regulatory measures such as premium floors or targeted incentives to ensure continued coverage of low-margin but socially critical insurance segments like credit life,” the source said.

However, the IRDAI did not respond to Moneycontrol’s email with a response.

Since most MFI loans are given one per household, and each loan is typically bundled with a credit life policy, the number of insured lives is roughly equivalent to the number of insured families.

Using government estimates of 25 crore households in India (based on Census 2011 projections updated by the Ministry of Statistics and Programme Implementation), the loss of 4.7 crore insured lives indicates that nearly 20 percent of households are now uninsured through these group schemes.

Despite the sharp pullback by private life insurers from group credit life insurance, sources said, premiums for such products are unlikely to rise in the immediate term.

Credit life policies are aimed at securing the viability and repayment of the loans should there by any unforeseen circumstances at the borrower’s end. In the last 5-6 years, most microfinance loans are being sold jointly with a credit policy, which attracts a small upfront one-time premium.

Typically, for life insurers credit life policies, especially those bundled with microfinance loans, operate under tight pricing constraints. These are low-premium, high-volume products that are typically governed by regulatory caps and intense competition.

The overall MFI sector, despite growing to Rs 3.5 lakh crore in loan portfolios by March 2024 (according to Microfinance Industry Network data), has struggled with repayment volatility and rising delinquencies post-COVID.

The microfinance sector’s loan portfolio shrank by 14 percent year-on-year to Rs 3.81 lakh crore in FY25, with disbursements falling by 25 percent and AUM declining nearly 12 percent to Rs 1.47 lakh crore. This contraction, coupled with rising delinquencies, may have also contributed to the drop in credit life insurance policies, which are typically bundled with fresh loans.