Insurance reforms could unlock vast growth opportunity: Dinesh Kumar Khara

India’s insurance sector stands at a pivotal moment, with recent legislative reforms expected to align the industry more closely with global practices and significantly improve insurance penetration, according to Dinesh Kumar Khara, Former Chairman, SBI.

Speaking to ET Now on the government’s flagship insurance reform theme — “Sabka Bima, Sabki Suraksha” — Khara said the country remains vastly underinsured, highlighting both the challenge and the opportunity before the sector.

“If we look at the penetration level currently, it is just about 4%, around 3.7% or so, which is actually half of the global average. When it comes to per capita insurance, that is only $97 in our country, compared to almost ten times more — about $940 globally,” Khara said.

He noted that while insurance was historically “sold and never bought” in India, the pandemic marked a behavioural shift, particularly in health insurance. “Post-pandemic, we have seen that health insurance is now being bought by a very large segment of the Indian population. People have started perceiving risk and hedging that risk through insurance,” he said, adding that while progress has been made, the country still has “a long way to go.”

Khara pointed out that life insurance penetration stands at about 3.4%, while non-life insurance penetration is only around 1%, far below the global non-life average of nearly 3%. “There is scope on both sides — life as well as non-life,” he said.

On the regulatory front, Khara said amendments to the Insurance Act would help bring global best practices into India. “Now 100% capital can be brought in by the insurer. This is a very liberalised regime and will go a long way in improving insurance products, pricing, premiums and their acceptability among the larger population,” he said.Responding to questions on implementation timelines, Khara said the bill has already been passed and regulatory frameworks are currently being finalised. “Once the regulations are in place, the industry will move ahead with implementation and we will start seeing the impact,” he said.On why certain proposals such as composite licensing, value-added services and full open architecture were not included in the final bill, Khara said the decisions were guided by global experience and the maturity of the domestic market.

“Composite licensing has worked well only in a few geographies, notably Singapore. India’s scale, population and economic structure are very different. Life and non-life insurance have fundamentally different liability structures, which require clear segregation,” he said, while acknowledging that cost efficiencies in distribution were a potential advantage of composite models.

He added that India already sees limited overlap, particularly in health insurance, where both life and non-life insurers operate, though often through subsidiaries. “Pure-play composite insurance is still some distance away, and that is very clear,” he said.

On value-added services, Khara said such offerings usually emerge as economies and industries mature. “Maybe it is part of the journey and could be revisited at a later stage, but perhaps it was felt that this is not the right time yet,” he said.

Addressing the debate on open architecture, Khara said differing levels of investment across distribution channels influenced the decision. “Some companies have invested heavily in agency channels, while others benefit from legacy investments. Once the industry matures further, this can be revisited,” he said, adding that bancassurance already offers a degree of open architecture.

“Banks can tie up with up to nine life, nine general and nine health insurance companies, so to that extent open architecture is already in play,” he noted.

On concerns around mis-selling through the bancassurance channel, Khara stressed the importance of self-discipline. “Bancassurance is perhaps the lowest-cost distribution model. Given the vast banking network in India, it offers a very viable vehicle for insurance distribution,” he said, citing the success of social security schemes such as the Pradhan Mantri Jeevan Bima Yojana and accident insurance policies.

Khara concluded that while reforms may be phased and calibrated, they lay the foundation for deeper insurance penetration and sustainable growth in the years ahead.