Rising premiums may hit health insurance growth

The record growth seen by health insurance segments risks tapering off with reducing affordability. The growth in health insurance has been largely due to increase in premium as there has been a steady increase in average premium per policy in recent years, according to insurance consulting firm Milliman.

Health insurance premium has more than doubled from Rs 24,448 crore in FY15 to Rs 51,636 crore in FY20. According to Irdai’s annual report, the number of people covered under health insurance shrunk from 48.2 crore in FY18 to 47.2 in FY19. The numbers for FY20 have not yet been released. Between FY16 and FY19 when the total premium rose 86%, the average premium per person rose 40%

In the current fiscal too, health insurance has been the fastest-growing segment. This is also because many insurance companies have revised their premium tables.

According to Joanne Buckle, the lead consultant in Milliman’ healthcare practice, the challenge is to make the health insurance business sustainable in the backdrop of high medical inflation. She adds that growth tends to level off when the average premium keeps increasing year-on-year. In India, another reason for the premium to rise this year is an effort by the regulator to make health insurance more comprehensive by standardising the exclusions. While this has made the coverage more inclusive, the trade-off has been on reduced affordability. Policyholders have seen their premium bills rise in double digits for the same sum insured.

According to Buckle, if the insurance cover is not comprehensive enough, it would mean that policyholders pay out of their pocket for some claims. Insurers should rather control the cost of claims to ensure that the business growth is sustainable.

Non-life companies do not have much headroom to reduce cost of cover as most of them are already experiencing a combined ratio of over 100. A combined ratio is the ratio of claims, commission, and operating costs to the premium. Post-Covid, the health segment has grown by more than 15% between April and September 2020 compared to the year-ago period. Most major players registered a healthy growth.