RBI worries over high-cost sharing strategies of insurers
Says in life insurance sector, frontloaded acquisition costs limited extent to which scale efficiencies passed on to policyholders
image for illustrative purpose
Mumbai: The Reserve Bank (RBI) has flagged structural pressures in the insurance sector, saying premium growth is being increasingly driven by high-cost distribution-led strategies of insurance companies rather than operating efficiency.
While posing no near-term systemic risks, the surface-level stability masks emerging structural pressures that could weigh on medium-term sustainability and coverage expansion, RBI said in its latest financial stability report.
“A primary pressure is the persistence of a high expense structure, particularly the acquisition costs. Premium growth has been increasingly driven by high-cost distribution-led strategies rather than operating efficiency,” the report said.
It further said that while in the life insurance sector, frontloaded acquisition costs limited the extent to which scale efficiencies are passed on to policyholders.
Furthermore, expected benefits from digitisation remain unrealised.
“From a financial stability perspective, continuously elevated expenses could weaken profitability buffers and amplify cyclical vulnerabilities,” it said.
A reorientation towards cost rationalisation, aligning intermediary incentives with persistency and value to policyholders, and wider adoption of technology-enabled low-cost distribution models is essential, it said.
