Most of us might have seen the recent news of TVS group foraying into the health insurance industry in India. Currently, there are 5 standalone health insurance companies in India offering only health insurance plans in addition to the nearly 33 general insurance companies offering health insurance plans as a part of their portfolio. On top of this, India’s Insurance Regulatory and Development Authority has announced that it would grant composite licenses to insurance companies so that they can sell both life insurance plans and non-life insurance policies.
Despite heavy competition, many firms are willing to enter the tough health insurance market. What makes the companies think they could survive in such a tough environment? The answer lies in the remarkable growth of the health insurance business in India, particularly post-covid. While the general insurance industry comprising the 33 general insurance companies grew at 13%, the 5 standalone health insurance companies grew at 26.2%, indicating the growth potential in the health insurance industry.
The meteoric rise of the health insurance industry can be attributed to the rise in health insurance premiums after adjusting the inflation and larger policies being issued.
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Lets Discuss the Scope for New Health Insurance Companies to Enter the Market
Standalone Health Insurance
IRDAI has recently granted health insurance licenses to two new entities- Galaxy Health and Narayana Health Care. There are at least 3 more licenses pending with IRDAI at different stages of approval. Most insurance companies entering the health insurance market are standalone insurance companies. In this way, the new entities can focus on one segment and develop innovative products that could be useful to them as well as the customers. Being a standalone health insurance company allows them to launch unique products in the market, thereby capturing the larger pie.
Rising Healthcare Expenses in India
Medicare inflation: The rising healthcare costs in India are also paving the way for increased health insurance sales. A recent report has highlighted that India is leading the medical inflation rates with 14% among the Asian countries for 2023, and we can only expect this to go up yearly. The burden of increasing healthcare expenses could no longer be handled by the middle class and lower strata of society, forcing them to move to alternatives such as retail health insurance and employer-sponsored health insurance. A report from Emkay Finance shows that retail health insurance premiums in India grew steadily at 20% over the past couple of years, particularly after the onset of the pandemic.
Opportunity to Participate in Government Schemes
The other advantage for new entities is that they can participate in central and state government-sponsored health insurance schemes. For example, the Union government of India has launched a personal accident insurance policy named “Pradhan Mantri Suraksha Bima Yojana,” which is coordinated by the general insurance companies impanelled by the government of India. Other health insurance schemes of several state governments are also handled by insurance companies. The flagship health insurance scheme “Ayushman Bharath” is also handled by various insurance companies impanelled by the respective state governments. This way, the new entities could enter the health insurance market and gain access to the customers for whom they may cross-sell their other products, such as the top-up health insurance plans.
Profit-making Business
Health insurance is one of the most profitable businesses in the insurance space, as the claim settlement ratio is lower than other insurance plans. Almost all the general insurance companies suffer from high incurred claim ratios (ICR) due to the motor third party claims which do not have any limit of liability. On the other hand, standalone health insurance companies report healthy ICRs due to the fixed liability in health insurance plans. Due to this reason, the health insurance business is considered the most profitable segment, particularly the retail health insurance business.
With the introduction of cashless hospitals for everyone by insurance bodies, the burden of tie-up would be reduced on the insurance companies, further strengthening their profits.
FAQs
<strong>What is the incurred claims ratio in health insurance?</strong>
The incurred claims ratio in health insurance refers to the total amount of claims paid compared to the total premium collected by the insurance company in a given financial year. The higher the claims paid, the higher the incurred claims ratio.
<strong>What is the difference between underwriting profit and investment profit? </strong>
Underwriting profit (loss) refers to the difference between the premiums collected and the expenses incurred by an insurance company. The expenses incurred include administrative expenses and claims paid by the company. If the premiums collected are more than the expenses, then it would result in underwriting profit. Investment profit refers to the income an insurance company generates with the investment made. For instance, the premiums collected would generate income under-investment profit.
<strong>What is the minimum paid-up capital to establish a health insurance company in India?</strong>
The minimum paid-up capital to start a health insurance company in India is Rs.100 Crore, and the Indian government has proposed reducing this amount to accommodate a larger number of insurance companies in the Indian insurance market.
<strong>How many claims can be made under a health insurance plan annually?</strong>
Any number of claims can be made under a health insurance plan in a given policy period, subject to the condition that the sum insured is not exhausted during the policy period. There are provisions in a health insurance policy for refill of the sum insured up to a certain number of times.
<strong>What is the solvency ratio of a health insurance company?</strong>
The solvency ratio for standalone health insurance companies is fixed at 1.5 or 150%, calculated by dividing liabilities by assets.
