Economic Survey 2025-26 flags high customer acquisition costs in insurance industry
The Hindu
Economic Survey 2025-26 highlights rising customer acquisition costs in insurance, urging cost rationalization to enhance industry sustainability.
Customer acquisition in the insurance industry continues to depend heavily on expensive intermediary networks inspite of the push for digital transformation, Economic Survey 2025-26 said, making a case for rationalising the cost structure.
Escalating acquisition and administrative costs have resulted in higher operating expenses for both life and non-life insurers, according to the document of Finance Ministry’s Department of Economic Affairs tabled in the Parliament on Thursday (January 29, 2026).
Economic Survey 2025-26 LIVE
Counting high operating costs among structural challenges, the authors of the Survey said instead of technology leading to cost rationalisation, the costs have steadily increased with a significant portion of premiums being consumed by distribution overheads. The rising cost of acquisition is not merely an operational friction as it acts as a structural constraint on the sector’s evolution, creating distortions that limit inclusion, erode consumer value and threaten long-term stability.
Rationalising this cost structure is the critical lever required to transition the industry from a ‘high-cost, low-penetration’ equilibrium to a sustainable growth path. The Survey’s recommendation comes amid the insurance regulator IRDAI, in its 2024-25 annual report, saying 23 life and non-life insurers had exceeded the limits of expenses.
According to the Economic Survey a high-cost model poses a risk to the core financial strength of insurers. Private life insurers, despite robust topline growth, have seen net profit stagnate, as escalating acquisition expenses compress margins. Similarly, the nonlife sector faces high combined ratios, forcing a heavy reliance on investment income to subsidise operations, a strategy that exposes the sector’s bottom line to capital market volatility. Rationalising acquisition costs would allow insurers to price risk more accurately and increase value to customers, making products and prices more affordable, the authors said.
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