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SAHI JAWAB FOR INSURANCE

Relevance: GS 3 – Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment

Why in the news?

• India’s insurance industry is undergoing a major transformation.
• Growth of health insurance is the primary driver of this change.
• The Insurance Regulatory and Development Authority of India (IRDAI) has transitioned from rule-based to principle-based regulations.
• The aim is to achieve universal insurance coverage by 2047.

Insurance market in India

The market has reached $10 billion in gross written premium (GWP), making it the fastest-growing segment.

Factors driving this growth include:

• Population increase.
• High out-of-pocket healthcare costs.
• Increased awareness post-Covid.
• Medical inflation.
• Introduction of stand-alone health insurers (SAHIs).

Health Insurance Premium Trends

• Health insurance premiums tend to increase over time due to ageing policyholders’ health risks.
• In contrast, other insurance sectors see premiums decline due to asset depreciation.
• Health insurance holds a 38% market share in general insurance.

Stand-Alone Health Insurers (SAHIs) Performance

Well-run SAHIs have gained a significant share in the individual health segment. SAHIs have shown:

• 25%-plus growth rates.
• 61% superior loss ratios.
• Extensive agency/hospital networks and strong partnerships. SAHIs excel due to their product focus.

Distribution Channels and Profitability

• Agencies dominate individual health insurance distribution.
• Direct-to-consumer channels have a lower than 95% combined operating ratios.
• SAHIs have penetrated SMEs’ group health products more profitably than traditional group products.

Financial Performance and Sustainability

• Leading SAHIs have recorded underwriting profits recently.
• Factors contributing to their sustainability include:
  • Over 80% persistency rates.
  • Optimal risk underwriting/pricing interventions, including price hikes.
  • Operating leverage driven by scale.
• This leads to a sustainable 25%-plus return on equity at scale.

Innovation and Technology in Health Insurance

• Innovation and tech are driving growth in the health insurance sector.
• Insurers leverage tech for:
  • Product innovation.
  • Wellness incentives.
  • Micro-insurance to deepen penetration.
• This reflects broader healthcare industry trends toward consumerization and advanced tech solutions.

Investments in Advanced Analytics and Data Utilization

• Substantial investments have been made in:
  • Predictive analytics.
  • Risk mitigation.
  • Fraud detection.
  • Harnessing data availability.
• Convenience and personalization are driving forces.
• Advanced data and analytics reliance involves efforts from:
  • Distribution partners.

Data Sharing and Customisation

• Customers are increasingly comfortable sharing data.
• Insurers are exploring various data sources for:
• Potential incorporation of social footprint mapping to:
  • Enhance customer experience.
  • Expand coverage to underserved areas and demographics.

IRDAI’s Initiatives and Policy Measures

• IRDAI has catalyzed the transformation with strong policy measures over the last 18 months.
• Key initiatives include:
  • Bima Sugam (digital platform).
  • Bima Vistaar (comprehensive product).
  • Bima Vahaks (last-mile communication network).
• Efforts to improve customer experience and reduce fraud involve:
  • Simplifying policy wordings.
  • Expense of management.
  • Use and file.
  • Expanding cashless services.

Introduction of Composite Licences and Sector Growth

• Likely introduction of composite licences will allow insurers to offer integrated life, general, and health insurance solutions.
• This may increase competitive intensity but is expected to catalyse sector growth through:
  • New agents.
  • Improved agent productivity.
  • Expansion into nascent distribution segments.

Financial and Regulatory Catalysts

• Introduction of Ind AS and risk-based solvency in the next few years are long-term catalysts.
• These measures can free up capital and increase ROEs, though they may present short-term volatility.

Investor Interest and Key Deals

• Investor interest remains robust due to:
  • Low retail penetration rate of 4% (basis number of lives covered).
  • Higher customer engagement metrics.
  • High lifetime customer value.
  • Attractive returns on equity.
• Key deals include:
  • Bupa’s $325 mn-plus investment to increase their shareholding in Niva Bupa.
  • ADIA’s investment in Aditya Birla Health Insurance.

M&A Opportunities

• Presence of only five SAHIs adds a meaningful scarcity premium.
• M&A opportunities in the sector include:
  • Capital recycling by financial sponsors.
  • Greenfield ventures by new entrants or carving out the health insurance business by existing general insurance players.
  • Composite licence-driven outcomes for existing players, integrating life and general insurance interests.

Projected Growth and Market Evolution

• The sector is projected to grow at around 20% CAGR over the next five years.
• Regulatory measures have catalysed the sector’s growth, providing a solid platform for future potential.

SAHI Players and Market Expansion

• Best-in-class SAHI players, with strong starting positions and focus on:
  • Product innovation.
  • Healthcare expertise.
• These players are expected to expand their market share.
• Health insurance players may look towards backward and forward integration, offering value-added healthcare services for a seamless customer experience.

Continued Attraction for Financial Sponsors and Strategic Capital

• With robust growth and favourable financial metrics, the sector will continue to attract financial sponsors and strategic capital.

Source:

https://m.economictimes.com/opinion/et-commentary/sahi-jawab-for-insurance/articleshow/108771203.cms

Mains Question

Discuss the transformative trends and growth prospects in India’s health insurance sector, focusing on regulatory reforms and the role of technology and innovation. (Word limit: 250 words)