India's health insurance sector faces growth and profitability challenges: Report

Time of India

3 days ago

New Delhi:
India
's health insurance industry, which was earlier considered a strong and steady growth story, is now facing serious structural challenges.
A recent report by Elara Capital has highlighted that both growth and profitability in the sector are being affected, which may redefine the long-term potential of health insurers in the country.
It said, "India's health insurance industry, long seen as a secular growth story, is facing structural constraints in terms of growth as well as profitability".
According to the report, one of the key reasons behind this slowdown is the overestimation of the total addressable market (TAM) for private insurers. Many experts had earlier projected a large market for private health insurance.
However, with the expansion of government-sponsored health schemes that offer widespread coverage, the actual market available for private players has reduced. This has made it more difficult for private insurers to grow at the pace previously expected.
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At the same time, increasing competition in the sector is adding more pressure. The report noted that factors such as a shift in policy mix toward older or vintage policies and the growing bargaining power of hospitals and insurance distributors are affecting the profitability of health insurance companies. These trends are putting a cap on the margins of insurance manufacturers.
The report also pointed to the entry of
LIC
into the health insurance segment, along with other life insurance companies that are expected to enter through composite licenses. This will further intensify competition and could limit growth opportunities for traditional standalone health insurers (SAHI).
Due to these challenges, the report advised investors to lower their long-term expectations for broad-based growth in the health insurance sector.
Instead, they should focus on more resilient areas such as third-party administrators (TPAs) and diversified multi-line private general insurers, which tend to have stronger business models and better profitability.
Another concern is the rising cost of claims. The report explained that after COVID-19, there has been a shift in focus toward critical illnesses like cancer and heart conditions. This has led to higher claim frequency and severity, putting additional pressure on insurers.
Loss ratios remain high, and the situation is worsened by increasing hospital occupancy, which has gone up from 52 per cent in FY21 to 64 per cent in FY25.
Along with this, the average revenue per occupied bed (ARPOB) has grown at a compound annual growth rate (CAGR) of around 10 per cent, further driving up the cost of claims.
In summary, the report highlighted that India's health insurance sector is going through a structural change. While traditional players may face limited growth, new opportunities exist in niche segments with better economics.
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