Covid-19 has exposed the fact that health insurance penetration is woefully low in India. The ratio of domestic gross direct premium income (GDPI) underwritten by non-life insurers in respect of health insurance to GDP (at current prices) — a measure of insurance penetration — was just 0.30% in 2020-21, 0.25% in 2019-20 and 0.24% in 2018-19. The higher ratio in 2020-21 was more due to YoY reduction in GDP by 3%.
Despite increased interest in health insurance after the pandemic broke out, very little has translated into business for insurers. YoY increase in GDPI dropped serially from 20.7% in 2018-19 to 13.5% in 2019-20 and to 13.3% in 2020-21. Reduced income, or precautionary savings, for urgent Covid treatment, dissuaded people from ‘immediately’ buying health insurance.
However, in general, health insurance, has got a foothold. The market share of health insurance in terms of GDPI increased continuously from 26.6% (2017-18) to 31.6% (2020-21), and ranks second highest, after motor insurance.
The question revolves around the premium rates at which health policies are available. The ‘bottom of the pyramid’ is taken care of by GoI’s subsidised schemes. For those at the ‘top’, affordability isn’t an issue. The vulnerable group is the wide spectrum of the middle classes. For health insurers, this is where the ‘cream’ lies. Therefore, they have to design ‘low-premium and high-volume’ products with a wide range of product differentiation.
Today, if health insurers hike their premium rates by reportedly 10-15%, people already stung by Covid-induced shutdowns will just not be able to buy policies. So, the hikes in premium rates need to be calibrated to the likely increases in per capita income.
Even though subsidised and corporatised ‘group’ schemes are bleeding concerns for health insurers — as the premium is way below the claims ratio — some ‘cross-subsidisation’ is indeed inherent in insurance businesses. The aim of the insurers in this ‘catastrophic’ situation should be to break even, not earn supernormal profits.
Considering India’s middle-class population, the number of health insurers is inadequate. There are 25 general insurers (four in the public sector and 21 in the private sector) and seven standalone health insurers (SAHI). Among the general insurers, during 2020-21, the four public insurers had a market share of 62.8% in GDPI (health) and the 21 private insurers the remaining 37.2%. Moreover, while within the public sector, two insurers cornered 62.3%, within the private sector, three had a share of 52.7% in GDPI. Among SAHI, only two cornered 76.3% of GDPI.
Thus the health insurance market is highly skewed — rather, oligopolistic. Oligopoly incentivises cartelisation and consequently, artificially high premiums, less product innovation, mis-selling and inefficient post-sales care. India needs more players in the health insurance segment.
However, the entry of additional players is hindered by the low rank of India in the Human Development Index (HDI) — 131st among 189 (2019). In fact, in most parts of the country, sub-standard health conditions, coupled with poor sanitation, act as a barrier against low premium by the existing players. So, the administration has to work towards mitigating these systemic issues.
Some fiscal incentives are necessary to motivate people to buy health insurance. The income-tax exemption limit for health insurance premium paid, under Section 80D of the I-T Act, should be abolished.
To bring more people into the ambit of health insurance, a lot of responsibility devolves on health insurance agents, administration, NGOs, voluntary bodies and hospitals. Exorbitant pricing of treatments by hospitals feeds, directly or indirectly, into the premiums charged by health insurers. So, regulation of hospital rates, coupled with vigilance, is necessary.
To create awareness about health insurance, IRDAI should set up a dedicated fund in the lines of Depositor Education and Awareness Fund Scheme (RBI) and Investor Protection and Education Fund (Sebi). Most Indians are ‘carefree’ about their health. They also expect a lot from the administration, that too free of cost. Covid has hit at the root of this attitude. People have to be responsible for their own health and cover their health risks adequately.