IRDAI misses to measure average sum assured per policyholder in its annual report

Every year, I read the annual report of the Insurance Regulatory and Development Authority of India (IRDAI). And every year it tells me, at considerable length, how the regulator measures the health of India’s insurance industry. There are two metrics: insurance penetration, i.e. premiums as a percentage of GDP, and insurance density, i.e. premiums collected per capita. Both measure the same thing in different ways. How much are Indians paying to insurance companies?

What neither metric measures is how much insurance Indians actually have. This isn’t a trivial omission. The purpose of life insurance is to make sure that when someone dies, the family doesn’t face financial ruin. The questions that follow this are obvious. What is the average sum assured per policyholder? How many earning adults have insurance coverage which is adequate for their income and liabilities? When a claim arises, does the payout actually replace the lost income?

The annual report has no answer to any of these. It doesn’t ask them. It knows, to the last crore, how much premium the industry collected. It doesn’t know, or doesn’t think it worth publishing, how much protection that premium has bought.

Far behind the world

I wrote about this five years ago. Reading the latest report, nothing has changed. The definitions are identical. So is the self-congratulatory framing. India’s insurance density is now $97 per capita, up from $95 a year ago. The world average is $943. We are measuring how far behind we are in premium collection per head, not in protection per family.

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Now here’s where it gets interesting. If you want to understand why the ruler measures what it measures, follow the commissions. In 2024–25, India’s life insurance industry paid out `60,800 crore in commissions to agents and intermediaries. That is an 18% jump over the previous year. Premium income over the same period grew by 6.73%. Commissions grew at nearly three times the rate of premiums. Within that, new business commissions paid by private sector insurers jumped by nearly 41%.

This isn’t a detail buried in a footnote. It is the central fact about how the Indian life insurance industry operates.

Pushing high-premium products

Agents are paid handsomely to bring in new business. The products that pay the highest commissions are, without exception, the products that deliver the least value to the customer. ULIPs. Endowment plans. Money-back policies that bundle a small amount of insurance with a large amount of opacity. A simple term policy, the only product that provides genuine protection at a reasonable cost, pays a fraction of those commissions. An honest agent who correctly identifies a customer’s need and sells a term plan earns a fraction of what a less honest agent earns by steering the same customer into an endowment plan.

The incentive structure is precisely inverted. It rewards the sale of products that collect more premiums while delivering less protection. Which is exactly what the regulator’s preferred metrics are designed to celebrate.

When IRDAI defines success as premium collected, and the industry maximises commissions by selling products that collect maximum premium per unit of cover, the two are in perfect alignment. No one needs to collude. The ruler measures what the industry finds convenient. The industry finds it convenient because the ruler keeps pointing upward.

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The customer, meanwhile, is somewhere off the chart entirely. Last year, `2.33 lakh crore was paid out in surrenders and withdrawals. That is more than a third of all benefits the life industry disbursed. Some of this is planned, especially in linked products. But a significant part represents customers exiting policies they later realised were the wrong fit. In many traditional policies, surrender isn’t a sign of successful financial planning. Buyers are cutting their losses after years of paying for the wrong product.

A simple fix

The fix is not complicated. IRDAI could publish, alongside premium and density, the average sum assured per policyholder. Better still, the ratio of average sum assured to average annual income. Both numbers exist somewhere in the industry’s data. Neither is hard to compute. Neither is published, because both would tell a story the industry would find harder to celebrate. Until that changes, very little else will. The commissions are too good. The products too profitable. And the incentive to measure the wrong thing is too strong to resist.

The Author is CEO, Value Research