As the Union Budget 2026-27 approaches, SBI Research has outlined a set of targeted recommendations for the insurance sector, focusing on improving penetration, strengthening consumer trust and building long-term resilience. The suggestions come amid concerns over slowing insurance growth and a widening protection gap, even as policymakers push toward the goal of “Insurance for All by 2047.”
In its Prelude to Union Budget 2026-27 report, SBI Research highlighted the need for stronger tax incentives to encourage wider adoption of insurance products.
Tax deductions for term and health insurance
One of its key proposals is the introduction of a separate tax deduction for term life and health insurance, on the lines of the additional deduction available for the National Pension System. The report suggests that a dedicated deduction of Rs 25,000–Rs 50,000, applicable under both the old and new tax regimes, could significantly boost insurance coverage. Alternatively, extending Section 80D benefits to the new tax regime would help remove a major disincentive for taxpayers who have shifted away from the old structure.
The report also flags growing stress in the health insurance ecosystem, particularly around claims settlement. According to SBI Research, nearly 69 per cent of insurance-related complaints in FY25 were linked to claim-related issues. Delays, partial settlements and claim rejections have eroded consumer confidence, making reforms in claims processing critical. The report calls for systemic improvements to ensure transparency, faster resolution and fair treatment of policyholders, noting that trust is central to the long-term sustainability of the health insurance segment.
Digitisation and bancassurance
To improve insurance penetration, SBI Research emphasised the need to strengthen distribution channels through digitisation and bancassurance. Leveraging banks’ extensive networks, along with digital platforms, can help insurers reach underserved and rural areas more effectively. The report notes that digital distribution can also lower costs, improve customer experience and make insurance products more accessible, particularly for first-time buyers.
Disaster risk coverage
Another major recommendation relates to disaster risk coverage. SBI Research pointed to a significant protection gap in India, estimating that around 93 per cent of losses from natural disasters between 1991 and 2025 remained uninsured. With climate-related events becoming more frequent and severe, the report advocates the creation of a public–private disaster risk insurance pool. Such a mechanism would help spread risk, provide faster financial relief after disasters and reduce the fiscal burden on governments while protecting households and businesses.
Risk-based capital framework
On the regulatory front, SBI Research proposed transitioning to a risk-based capital (RBC) framework for insurers. The current solvency regime, which relies on static and formula-based requirements, may not adequately reflect the actual risk profile of insurance companies. A risk-based approach would align capital requirements more closely with underlying risks, improve capital efficiency and strengthen the sector’s ability to absorb shocks, the report said.
SBI Research noted that insurance penetration in India declined to about 3.7 per cent in FY25 from 4.2 per cent in FY22, underscoring the urgency of policy support. The report argued that a combination of tax incentives, regulatory reforms, improved claims management and innovative risk-pooling mechanisms is essential to reverse this trend.
Overall, SBI Research said its recommendations aim to deepen insurance coverage, enhance consumer confidence and build a more resilient insurance ecosystem. With Budget 2026-27 expected to focus on inclusive growth and financial security, the insurance sector reforms outlined in the report could play a key role in expanding protection and strengthening India’s long-term economic stability.