Indian health insurance: A shifting landscape

In a game where the stakes are as high as life itself, India’s healthcare insurance landscape is undergoing a significant shift. Traditionally, hospitals and insurance companies have operated independently, each with its own objectives, often leading to inefficiencies and delays in patient care. However, this separation is being potentially disrupted by Narayana Health’s stand-alone insurance model, which merges insurance with patient care into a unified system. This innovative approach combines the roles of insurer and hospital, creating a more streamlined and efficient process. However, the question remains: Will this new model, and its first product Aditi Plan, launched in July, reshape the Indian insurance landscape?

Birth of a new health insurance model 

The Insurance Regulatory & Development Authority of India (IRDAI) granted Narayana Health Insurance a Certificate of Registration during its 124th meeting on December 28, 2023, marking the first such approval in five years. This approval brings the total number of standalone health insurance players in India to six, reflecting the government’s commitment to the ‘Insurance for All by 2047’ vision. 

Building on this momentum, Narayana Health recently introduced its first product, Aditi, which offers comprehensive coverage, including Rs. 1 crore for surgeries and Rs. 5 lakh for medical management at Narayana Health network hospitals. Initially limited to Narayana Health facilities for elective procedures, the plan now allows emergency treatment anywhere, minimising administrative hurdles. “Unlike traditional plans, Aditi prioritises a smooth and efficient experience, so the coverage is primarily within the trusted Narayana Health network, where experienced doctors and advanced facilities wait,” informs Viren Prasad Shetty, Vice-Chairman, Narayana Hrudayalaya. 

Adding on to it Dr Devi Shetty, Chairman of Narayana Health, emphasises the importance of this approach by highlighting a critical gap in India’s healthcare system, “In India, there is a need for 70 million surgeries, but only 20 million are being performed as people do not have the means to undergo bellwether procedures like caesarean deliveries, laparotomies, and treatment of open fractures.”

Shifts in health insurance landscape

The new model has attracted a lot of attention and also brought to the fore the myriad opportunities and challenges that the Indian health insurance sector presents. 

A recent Jefferies report highlights potential pressures, noting that the health insurance sector may face rising claims and increased competition, particularly in the retail segment. “Health, which accounts for approximately 35 per cent of the mix, could see pressure in its retail segment from rising claims frequency and elevated competition,” the report stated. With the non-life insurance sector experiencing significant shifts, the health insurance segment may struggle with escalating healthcare costs and higher consumer claims, leading to squeezed margins and pressuring insurers to find ways to manage costs while staying competitive.

In light of these developments, several key players in the insurance industry have shared their perspectives on the evolving landscape. The Insurance Brokers Association of India (IBAI) points out that the market is experiencing rapid growth, driven by increased awareness and rising healthcare costs. “Medical inflation and post-COVID awareness have heightened the need for health insurance,” Narendra Bharindwal – Vice President, IBAI notes. Similarly, Pankaj Nawani, CEO of CarePal Secure emphasises that COVID-19 has been a watershed moment for health insurance, increasing awareness and demand. “Health insurance schemes have seen an increase post-COVID,” adds Nawani. Universal Sompo views COVID-19 as a catalyst for heightened awareness and anticipates a 15 per cent growth in the health insurance sector for 2024. “We believe that if we keep up with the current trajectory, we might become the sixth-largest insurance market within a decade,” opines Sharad Mathur – MD and CEO of Universal Sompo General Insurance.

Prudent Insurance also recognises the health segment as a major growth driver, highlighting that it accounted for half of the incremental gross premium in the last financial year. “ It is likely to remain the primary growth driver for the Non-life insurance industry,” shares Surinder Bhagat, Vice President, Special Lines – Employee Benefits at Prudent Insurance Brokers.

The age of the informed consumer 

Consumer expectations are evolving alongside these trends. IBAI highlights that Indian consumers are increasingly price-sensitive and demand high coverage with minimal out-of-pocket expenses. “The primary challenge for traditional health insurance companies is the intense competition within the market,” Bharindwal states. In line with this, CarePal’s Nawani adds that customers now expect their insurers to act as partners in health management, rather than just claim processors.

This shift towards comprehensive coverage is also reflected in the observations of Star Health Insurance and Policy Bazaar, which underscore the growing demand for policies that include outpatient care, preventive health checks, and alternative treatments. “Consumers now expect policies that go beyond hospitalisation, covering outpatient care, preventive health checks, and even alternative treatments like AYUSH covers. Today’s Indian consumer is more informed, proactive, and demanding than ever before,” points out Anand Roy, MD & CEO, Star Health and Allied Insurance.

Tech-driven innovation 

Innovation and technology are critical to meeting these evolving expectations. Bharindwal accentuates the importance of product innovation and technology adoption, while Nawani highlights that innovations like cashless claims settlements have become standard practice. Star Health Insurance anticipates that the market will be driven by personalisation and digital integration, “ The lines between insurance, healthcare, and technology will continue to blur. Insurers are experiencing accelerated transformation by adopting emerging technologies,” explains Roy. On the other hand, Policy Bazaar and Prudent Insurance’s Bhagat are focusing on creating sustainable models through data analytics and advanced technology. “Innovative but simple to understand product offerings, frictionless purchase and service, technology-enabled risk assessment and claims processing, increasing penetration and profitable growth are the biggest challenges as well as opportunities we see in the current market,” notes Siddharth Singhal, Head- Health Insurance, Policybazaar.com.  

Collaborate to conquer 

Strategic partnerships and ecosystem development are also crucial in this changing environment. Bharindwal emphasises the need for partnerships with government bodies and financial institutions, Star Health Insurance’s Roy and Policy Bazaar’s Singhal highlight collaborations with banks, fintechs, and healthcare providers to drive growth and enhance service delivery. “ These collaborations will help us drive growth, control costs, improve service delivery and stay at the forefront of innovation in insurance,” states Roy.

Key goals: Affordability and sustainability 

Affordability and sustainability continue to be significant challenges. Both Bharindwal and Nawani point to the need for reducing out-of-pocket expenses and managing inflationary pressures. “The growth in market size is also influenced by inflationary pressures on insurance premiums. In summary, the key drivers are increased consumer awareness and the escalating costs of healthcare,” informs Bharindwal. Roy and Singhal apprise that their respective companies are addressing these issues through innovative products and strategic partnerships. “The focus on affordability is evident in the introduction of innovative products like micro-insurance and tailored group health insurance policies that cater to specific needs and budgets,” updates Singhal. While on the other hand, Universal Sompo’s Mathur acknowledges the difficulties posed by high customer acquisition costs. “Currently, the high customer acquisition costs and multi-layered setup are posing significant challenges. To overcome this and bring every Indian under the insurance arm, the industry has to create cost-effective ways to attract and retain customers,” admits Mathur.

A disruption in the making? 

As the industry navigates these changes, the emergence of new stand-alone insurance models, such as Narayana Health, has become a topic of discussion. According to GlobalData’s Manogna Vangari, “In-house health insurance models are considered the private sector’s reaction to Ayushman Bharat. The impact of in-house insurance models on the traditional insurance landscape will be limited in the short run due to restricted coverage of healthcare facilities and medical procedures.” She also points out that the Aditi plan is restricted to general wards at Narayana hospitals and offers limited coverage outside their network. “The drawback of this plan is that only the general ward at network provider hospitals affiliated with the Narayana Group in India is covered. Moreover, there is very little coverage outside of Narayana Health Network,” posits Vangari.

Despite these restrictions, KPMG identifies potential for disruption. They explain that stand-alone models can avoid high and unnecessary overdiagnosis, potentially benefiting the healthcare system and policyholders. “While these are still nascent, they have already exhibited signs of being disruptive for the traditional industry,” says Kailash Mittal, Partner and Head-Insurance & HeadActuarial, KPMG India. Additionally, Mittal stresses the importance of scalability, stating, “While it has challenges around scalability, an innate ability to disrupt the standardisation of definitions in procedures and claim settlement processes for a country as vast as ours is a major challenge in the offing.”

is cautiously optimistic about the impact of these models but also signals that their current scale and network limitations may not significantly affect the broader insurance market immediately. “The onset of inhouse insurance such as Aditi by Narayana presents a unique opportunity to step up our health insurance game and is a definite step forward in making insurance accessible to all. While the limited nature of the network coverage and scale may not end up moving the needle, this pilot, coupled with the regulator’s steadfast stance on improving claims processes will certainly force traditional insurers to introspect on and reinvigorate their models,” avers Debashish Banerjee, Partner, Deloitte India. Emphasising the potential of these models, he says, “The impact of these models on traditional health insurance players is futuristic – the key one being a shift in focus from easy-selling to ‘trust.’”

Looking to the future, Vangari suggests that the success of the Aditi Plan could lead other hospitals to explore similar models. She believes that integrating hospital and insurance provider roles could reduce insurance costs and streamline the claims process. “The hospital, the patient, and the insurance company are involved in the traditional health insurance model. In-house models try to save expenses and improve the efficiency of the insurance procedure by combining the hospital and the insurance provider,” explains Vangari. However, she also cautions about the long-term viability and states, “The sustainability of such models in the long term is doubtful as the issue with health insurance programs run by hospital chains is that they force the insured to rush their patients to the chain’s internal hospitals.”

Mittal and Banerjee further draw attention to the aspect that while the high coverage at low premiums offered by Aditi is attractive, the details of coverage and exclusions need close examination. Mittal notes, “A high coverage is being offered at low premiums – however one has to be mindful of the detailed fine print. With sub-limits on costs and surgical procedures, exclusions, and caps in place; one should not mistake the Rs 1 crore sum insured as similar to a traditional Mediclaim family floater cover of an equivalent amount.” Banerjee adds, “The long-term sustainability of models such as Aditi is still to be tested. The key risks associated here would be around managing potentially high claims ratios and underwriting quality.”

Mittal provides a forwardlooking perspective and states, “If this test is successful, it will serve as a new services and cost guidewire triggering an industry-wide recalibration.” He underlines that while the model is promising, its ability to disrupt the traditional insurance landscape will hinge on overcoming scalability challenges and ensuring long-term sustainability. Thus, industry experts and analysts are divided on the impact of the new entrant in the health insurance market. However, they are united in their opinion that the health insurance market requires newer approaches and models to ensure health coverage for all.

A transforming playbook

Providing additional context on the broader insurance landscape, Vangari highlights, “According to the National Insurance Academy, the current health protection gap is 73 per cent, which is noticeably high even with rising insurance awareness. A staggering 400 million people, or 31 per cent of the population, do not have health insurance because of lower penetration, inadequate coverage, and growing medical expenses.” This, in turn, has opened up avenues for better models to enter and grow in the market. She further elaborates on market strategies, “Insurers are trying to customise health insurance products, offering low-cost products, tailored products for women, enhanced claims services, discounts on lower claims, and cashless facilities to stay competitive.”

Commenting on growth strategies, Banerjee recommends, “The most effective pathway to staying competitive is to provide unique propositions, including lifestyle management and health and well-being, beyond insurance, and exceptional customer service.” He further notes that “toeing the line between costs and experiences is key,” and emphasises that “bringing in smarter underwriting and pricing tools, harnessing the power of data, and designing health insurance products to be of adequate, personalised, and ‘relevant’ coverage will help insurers remain competitive.”

In times to come 

Whether Narayana Health and its Aditi Plan trigger a broader industry transformation or remain a niche experiment, only time will tell. What is certain, however, is that the conversation around healthcare coverage has intensified and it foretells that the industry is poised for growth.

 

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