India’s private life insurers appear oddly unbothered. 

In the year ended March 2025, the number of people covered by life insurance policies fell by 47 million. That’s roughly a quarter of all the lives covered the previous year, making it one of the steepest declines ever. And yet, there’s been no visible panic from the usual suspects: not at HDFC Life, not at ICICI Prudential, not even at SBI Life or Bajaj Allianz.

This, according to a C-suite executive at one of the top private insurers, was “expected and anticipated”.

It should not have been, though. Insurance professionals who spoke to The Ken pointed out that such a dramatic collapse in coverage is usually caused by something big—say, a pandemic. This time, there was no such trigger.

The real problem, it turns out, sits squarely within the microfinance industry. Or as one long-time sector veteran put it, “It’s a self-inflicted crisis, and the bubble is popping now.” After years of aggressive lending, the industry is finally dealing with the consequences. Defaults are up, lenders are pulling back, and life insurers, many of whom rely on microfinance platforms to distribute bundled group policies, are quietly backing away.

This matters because group credit-linked life insurance, the kind typically attached to microloans, is a fragile thing. Popularised by Bharat Financial Inclusion (formerly SKS Microfinance) in the early 2000s, this bundled life cover into small-ticket loans to low-income borrowers who would otherwise remain uninsured.

So, when microfinance grows, coverage expands. When it falters, protection vanishes. This year, it has vanished at scale. 

The lending slowdown in microfinance has directly hit the number of credit-protected lives, admitted the C-suite executive. Public earnings calls by firms like ICICI Prudential and SBI Life confirm the trend. The sharp drop, in fact, exceeds even the post-Covid correction of 2020–21.

The executive said the stress has been building for some time. A regulatory tweakIRDAIRegulatory Revamp: A Paradigm Shift in 2024—intended to decouple insurance sales from aggressive lending practices—has made it harder for insurers to scale both arms in lockstep. Add to that a rising load of death claims, now hovering at nearly three-quarters of pre-pandemic peaks.