Whalesbook
Insurers Favor High-Margin Savings Over Core Protection
The strong financial results from India's leading life insurers hide a significant change in their product strategy. They are increasingly focusing on savings and investment-linked plans that offer richer profit margins, moving away from essential risk protection products. Although profits are high, this emphasis on ULIPs and guaranteed income schemes means less focus and fewer resources for term life insurance, the product designed to cover true risks.
Profit Boost from Product Selection
India's life insurance industry is seeing a profit surge. Companies like LIC, HDFC Life, ICICI Prudential, and SBI Life have reported substantial growth in their profit after tax and value of new business (VNB) margins for the fiscal year 2025-26. LIC, the country's largest insurer, reached a profit of Rs 57,419 crore, with its VNB rising 41.6% to Rs 14,179 crore and its margin improving to 21.2%. Other major players also posted strong VNB margins: HDFC Life at 24.2% and ICICI Prudential at 24.7%. This success is largely due to a strategic shift towards unit-linked insurance plans (ULIPs) and non-participating savings products, especially guaranteed income plans. These products allow insurers to keep surplus profits without sharing them with policyholders. For example, non-par products now make up a large part of LIC's VNB, helping its margin climb from 16.2% in FY23 to 21.2% in FY26. Analysts expect this trend of similar margins across the industry to continue.
Savings and ULIPs Lead the Way
The rise in profitability is closely tied to a clear shift in the types of products being sold. Unit-linked insurance plans (ULIPs) now form a significant portion of new business for major insurers. In FY25-26, ULIPs accounted for nearly 59% of SBI Life's total annualized premium equivalent (APE) and 48% of ICICI Prudential's new business. HDFC Life saw a sharp increase in its ULIP share, from 16% in FY22-23 to 39% in FY25-26. Even LIC's ULIP contribution has grown from 2% to over 9% in three years. This focus on ULIPs and guaranteed income plans directly boosts VNB margins because these products are designed to deliver greater returns for the insurer than pure protection plans.
The Shortfall in Protection Products
Pure protection products, which are fundamental to life insurance, are notably missing from the sales focus and business composition of these leading insurers. Term life insurance, meant to offer financial security against unexpected events, represents a very small part of their overall business. While HDFC Life reports 29.1% of its new business premium comes from protection, only 7.2% is from individual APE, with a large part being credit life insurance bundled with loans. ICICI Prudential's protection segment is mainly group term and credit life, with retail protection being a smaller area. SBI Life also has a modest protection share, and at LIC, individual protection made up just 0.71% of total individual APE in FY26. This imbalance is driven by commission structures that encourage agents and bancassurance partners to promote higher-premium savings products, which are more profitable for them, over critical pure protection plans. The result is an industry that prioritizes its own profitability, but fails to adequately address the fundamental need for life risk cover for a large part of the population.
Industry Analysis and Competitor Trends
The industry-wide focus on savings-linked products is also apparent when looking at competitor strategies. While specific VNB margin figures for protection-only products are rarely disclosed, industry trends indicate they are less profitable per policy for insurers. Major competitors like Bajaj Allianz Life and Max Life Insurance are also showing a similar product mix, favoring ULIPs and savings plans to improve their financial performance. The regulatory environment, while promoting insurance coverage, has not significantly changed the underlying incentive to push savings products. The low penetration of term insurance in India, estimated at less than 5% of total insurance premiums, stands in stark contrast to developed markets where protection products form a much larger share. This highlights a persistent gap between what people actually need in terms of insurance and what insurers are actively selling. The market valuations of these insurers, while reflecting current profitability, might not fully account for the long-term risk of an under-protected customer base, potentially creating future vulnerabilities. Current market data shows LIC trading at a P/E ratio of approximately 50, HDFC Life at 70, ICICI Prudential at 65, and SBI Life at 75, suggesting premium valuations driven by growth and margin expansion rather than the extent of risk coverage provided.