Health insurance segment to witness double-digit growth in medium term, says IndRa

Health insurance segment, which has seen strong growth over the last five years, will continue to witness a higher double-digit growth in the medium term helped by low penetration, according to a report. During FY15-FY20, the segment expanded by a compound annual growth rate (CAGR) of 20 per cent.

"We expect the sector to grow at higher double digits in the medium term, with private players growing even faster as they have been gaining market share over public sector firms and also because of the increase in premium prices due to medical inflation," India Ratings and Research said in a report.

The agency said it is essential for insurers to maintain adequate buffers over the regulatory minimum so as to be prepared for any unforeseen risk events. With the increasing standardisation of policies with an incremental reduction in exclusion, there could be upward pressure on premium pricing, it said.

Also, the COVID-19 outbreak has led to an increase in claim severity across insurers, as the lack of standard rates between hospitals has led to higher outflows, it said. "While COVID-19-like scenarios would be rare events, it would increase the premium pricing for the entire populace, with extra care needed for the treatment of infectious diseases," the report said.

It said the profitability of a large number of health insurers is largely driven by investment income, as many are yet to achieve underwriting profitability. With interest rates remaining subdued for a medium duration due to ample liquidity in the system, there would be pressure on the profitability of insurers, the agency said.

It said the incremental use of the new technology (such as blockchain) would be immensely advantageous for the segment. Technology would help reduce redundancy and duplication through seamless and real-time transaction recording across various insurance business process flows comprising contracting, underwriting, claim processing, distribution and historical tracking of diseases, the report added.

There is a great need for real-time technology for reimbursement-based claims, wherein customers need real-time monitoring of the status at each step of the health insurance claim, the report said. "Thus, technology can play an important role in controlling insurers' operating expenses, which forms a large part of the overall cost, with the claim ratio and investment income being volatile at times based on the operating environment," it said.

The agency said it expects significant solvency buffers to be maintained, on an ongoing basis, for its rated issuers.

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