India’s health insurance sector is evolving, and with the increasing penetration of the government health insurance schemes and competition from the new entrants, the traditional standalone health insurers are having a tough time in terms of growth and profitability.
According to an Elara Capital report, due to the limited total addressable market in India, the private health insurance companies will see a base case premium compound annual growth rate (CAGR) of 13 to 14 percent in the next 10 years.
Government coverage and limited market
As per the Elara Capital report, about 60 percent of the Indian population is eligible for the government health insurance schemes like Ayushman Bharat and the Employee State Insurance Scheme.
The government’s healthcare spending has also seen growth in recent years. In FY25, the share of government health expenditure in GDP was 1.1 percent, which increased to 1.8 percent by FY22. Furthermore, per capita health expenditure of the government has also increased from Rs 1753 in FY18 to Rs 3169 in FY22.
The increase in the health spending by the government is also increasing the health insurance coverage by the government schemes, which in turn is limiting the total addressable market (TAM) for the private health insurance companies. The size of the addressable population for the private insurers stands at 57 crore, says the Elara Capital report
Profitability concerns
The policy volume for the private health insurers is dominated by group insurance. However, the report points out that the insurers have a very limited power over the pricing due to the high bargaining power of corporates, increasing competition within the private players, and commoditized offerings. Due to these constraints, there has been little to no growth in premiums, the report says.
Secondly, post-COVID, the hospital occupancy and cure prices have risen, which has increased the claims costs for the health insurers. According to the report, hospital occupancy has risen from 52 percent in FY21 to 64 percent in FY25. During the same period, for the hospitals, the revenue per occupied bed has also increased by a 10 percent CAGR.
Meanwhile, due to the entrance of new companies, the distribution cost for the insurers has also risen due to the higher agent commissions.
However, the retail health insurance segment has shown good growth in the last 5 years. The premium per life has risen by 12 percent CAGR between FY19 to FY24. The segment has substituted, to some extent, the effect of the government schemes and group policies provided by the employers.
Future outlook
The Elara Capital report suggests that while the health insurance sector Premium is expected to see a 13 to 14 percent CAGR for the next decade. However, the new group health insurance policies are expected to remain constrained due to modest employment growth in the corporate companies.
The third-party administrators (TPA) stand to benefit in the evolving landscape of the health insurance sector of India, the Elara Capital report suggests. The light capital model of TPA companies gives them the freedom to operate thin margin and give an ROI of 17 to 30 percent.