India’s health insurance penetration gap: a call for action

Health insurance stands as a crucial pillar of financial security in the 21st century. With escalating medical expenses, lifestyle diseases, and unforeseen events like pandemics, the need for health insurance has never been more evident. On this National Insurance Day, it’s imperative to examine the challenges plaguing India’s health insurance sector and propose solutions to enhance insurance penetration nationwide.

The current landscape: understanding India’s health insurance reach

Approximately 90 crore Indians lack access to health insurance, according to IRDAI data. There has been plenty of talk over the last decade on solving this problem. Many argue that awareness is the solution. People should become aware and buy an insurance for themselves. Despite the efforts over the last decade to raise awareness and streamline purchasing processes, only 5 crore individuals have invested in personal retail insurance. Alarmingly, this figure has remained stagnant for the past several years, highlighting a critical gap in reaching the population.

So then why push the narrative that promoting personal insurance policy is the answer to the industry’s problems. The most likely answer is that this is a lucrative market. Even though it is not growing in terms of population coverage, but medical inflation itself is making the market grow at a rate of 15 per cent every year. The intermediary margins too are strong enough that this narrative will continue to exist.

Why group insurance matters: lessons from developed economies

Globally, group insurance has been the primary driver of penetration. either through a state sponsored structure, employer sponsored structure or any other group insurance construct. Taking the US economy – a highly penetrated country as an example, the largest contributor to insurance penetration is group insurance covering around 18 Crore people followed by government sponsored and affiliated insurance covering around 14 Crore people. Only around 10per cent of the population (3.5 Crore) buys a retail insurance plan. 

How is India’s insurance penetration segmented

Currently, India’s health insurance penetration is predominantly driven by government-sponsored schemes such as Ayushman Bharat, covering over 30 crore individuals. Group insurance follows closely, covering 20 crore people, while personal retail insurance lags behind at 5 crore. Despite stagnation in personal retail insurance, the group insurance segment is witnessing robust growth, underscoring its potential to address India’s insurance penetration challenge. It is currently the fastest growing segment in the industry. 

What does Group Insurance include: Employer Sponsored Insurance vs Embedded Insurance

The group insurance segment consists of employer sponsored insurance coverages for their employees. This is the largest contributor to the group insurance segment. The segment also include insurance schemes floated for a particular community or a group. Lastly, it would also include programs of embedded health insurance. Generally, these are sachetised micro insurance programs that can be bought at a very cost-effective rate. These group in nature and have the potential to aggressively grow in the future. 

Promoting group insurance: a pathway to universal coverage

To accelerate health insurance penetration in India, concerted efforts are needed:

• Government Support: Introduce tax incentives for businesses that sponsor insurance for their employees, encouraging broader adoption. Government would not be able to sustain a social safety net for all. It can instead transfer the responsibility to organisations with some interventions. 

• Insurer Strategies: Incentivise distribution channels to prioritise group insurance products over traditional retail offerings. Growth of SMEs in buying group insurance should be made attractive as these portfolios do tend to be profitable for insurers.

• Investment Opportunities: Investors need to look at the boring underbelly of the insurance industry and understand that group insurance penetration can becoming the largest opportunity for the insurance sector anywhere in the world.

• Role of Intermediaries: Insurance Intermediaries need to invest and expand their services onto group insurance. 

Looking ahead: towards “Insurance for All by 2047”

India has set an ambitious goal of achieving universal health insurance coverage by 2047. With the group insurance sector poised for substantial growth, collaborative efforts among stakeholders are essential to realising this vision. By prioritising group insurance initiatives and leveraging lessons from successful global models, India can build a more inclusive and resilient healthcare financing framework, ensuring financial security for all its citizens.