Retail health insurance can become a $25 billion market in 5 years

Retail health insurance segment has the potential to become a $25 billion market in the next five years, according to a report by Indian investment banking franchise Avendus Capital. 

The key catalysts for growth in the retail health segment, the report noted, would be low penetration of the healthcare insurance coupled with covid-19 led rise in awareness, product innovation and rising disposable income. It is pertinent to note that only 60 million individuals in India are covered with any health insurance policy. 

The report said that there has been a keen investor interest over the past few years and the insurance coverage is expected to reach around 250 million individuals. The health insurance sector in India has disrupted the insurance market growing at a rapid pace to become the largest non-life insurance segment in FY22. As over 45% of India’s significant population is lacking any health coverage, the retail health segment is expected to be the leader among other non-life insurance segments.  

“Retail health insurance will continue to be one of the most exciting segments within the overall non-life insurance space. Its unique characteristics such as high persistency of around 90%, pricing power, relatively low loss ratio and headroom for growth due to low penetration would see significant investments being done in this space to capture incremental market share,” Anshul Agarwal, Managing Director and Co-head, Consumer, Financial Institutions Group (FIG) & Business Services, Avendus Capital said. 

“The ability to generate consistently high profits and RoE (return on equity) of over 20% would account for sustained investor appetite due to limited opportunities in companies which focus purely on the retail health segment,” he said. 

Meanwhile, the health insurance experts have also called for some revisions and reforms in the upcoming budget for growth of the health insurance industry. “One of the long-standing demands of the insurance industry is the reduction of the 18% GST rate from health and life insurance products to make them more affordable. Additionally, increasing the limit to claim tax deductions under section 80C and 80D would further increase the adoption of life and health insurance products,” said Mukul Kanchan, VP and Head of Finance from Plum, an employee health insurance platform. “Also, rising cost of medical and hospitalization expenses has made health insurance products costlier, therefore incentives for the healthcare sector from the government will go a long way,” said Kanchan. 

Over the years, significant regulatory steps have been taken to attract participation from foreign investors and Standalone Health Insurers (SAHIs) have seen investments from marquee Domestic and Global PEs.   

The Avendus Capital report also highlighted that Standalone Health Insurers (SAHIs), that predominantly focus on the retail health segment have disrupted the market to capture over 50% market share and are expected to be the biggest beneficiaries of growth within the segment.  

“SAHIs have established a dominant presence in the retail health segment. Awareness of health insurance post-COVID has acted as a strong catalyst,” Snigdha Khemka, Director, Consumer, Financial Institutions Group (FIG) & Business Services, Avendus Capital said. “Given that the distribution of Retail Health is primarily individual agent driven, SAHIs’ single product focus and distribution arbitrage over multi-line insurers provide them with a significant competitive advantage,” said Khemka. 

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