Surging medical expenses drive health insurance in India

Digitalisation further fuels health insurance boom

Share of health insurance in the non-life insurance in India is set to surpass all other categories, including motor insurance this year as poor public healthcare facilities and expensive private care is driving the growth in number of people with health insurance. While the Covid-19 pandemic was the primary trigger for broader adoption of health insurance, the rising expense of private hospitals is driving its growth now.

Until a few years ago, the concept of individual health insurance was almost unheard of in India as most of the people preferred to turn to life insurance, not just as a measure of providing financial security to their loved ones, but also as a good financial investment due to tax breaks. Besides the government employees, who are all covered by a government-funded health insurance, only a fraction of relatively well-off private sector officials had subscribed to healthcare insurance, often paid for by their company. For most others, especially the vast majority of Indians on a hand-to-mouth existence, health insurance was a luxury.

It was Covid-19 pandemic and the unprecedented rates of infections and deaths that made a larger share of the population turn towards this form of insurance. And over the past few years, the sharp rise in healthcare costs has sustained the rise in the number of people taking health insurance.

And five years later, for the first time, the share of health insurance in the non-life segment is set to surpass all other categories combined, according to an insurance industry veteran Krishnan Ramachandran, MD and CEO, Niva Bupa Health Insurance.

Ramachandran was quoted in news reports as saying that the health insurance sector is growing at a steady rate of 14-15 pc and that the sector had strong potential for further expansion. With Finance Minister Nirmala Sitharaman’s decision to allow 100 pc FDI in the insurance sector, the company’s parent could not have been more excited at the prospect.

Ramachandran’s statement and enthusiasm are not rooted in thin air. According to London-based data analytics and consulting company Global Data, the health industry in India is expected to grow at a compound annual growth rate (CAGR) of 12.8 pc and is set to increase from USD 15.2 billion in 2024 to USD 23.8 billion by 2028.

The growth is such that the sector’s share in the broader insurance increased from 6.9 pc in 2023 to 9.5 pc in 2023. Further, the data and analytics firm also predicts that health insurance share is expected to reach 11 pc in 2028.

Why people are opting for health insurance?

The reasons people cite for opting for health insurance are countless, ranging from rising hospital bills to securing their future.

Hariom Singh an accountant at Pune-based startup company has been availing of insurance services since 2010. He cites the lack of employer-provided health coverage in private companies as the primary reason for his decision.

“When I joined a private firm, they did not provide health insurance. If any health-related issue arises, the financial burden falls on me, and I have to bear higher expenses. It puts a lot of pressure on me, so I must save my hard-earned money and take precautions. That is why I opted for health insurance. Now, I am free from financial worries and do not have to stress about paying lakhs for medical expenses,” Singh tells Media India Group.

But Vinod Bhatija, a Mumbai-based businessman, cites rising medical costs as the main reason for opting for medical insurance.

“Many of my friends have not taken health insurance due to a lack of awareness or high premiums. But with hospital bills rising, I knew I had to opt for health insurance,” Bhatija tells Media India Group.

Additionally, old age has been a major factor in more people opting for health insurance. Rajiv Chopra, a Delhi-based businessman and a policyholder for 12 years, cites age as the primary reason.

“The main reason I chose health insurance was my age. As we grow older and cross 55, thus to be on the safe side, health insurance is the best option,” Chopra tells Media India Group.

Meanwhile according to GlobalData’s insurance analyst, Sneha Verma, India’s health insurance industry has witnessed remarkable growth since covid-19 pandemic.

As per Grand View Research, the pandemic has heightened awareness of life’s uncertainties, prompting individuals to prioritise financial preparedness for medical emergencies. Consequently, as of 2022, India’s health insurance market stands at USD 12.64 billion, with the sector projected to expand at a compound annual growth rate (CAGR) of 11.55 pc between 2023 and 2030. Thus, reflecting people’s heightened sense of awareness and need for certainty post the pandemic.

According to Anil Anand, a freelance insurance seller, health insurance coverage before the pandemic was typically around INR 50,000. However, the crisis has shifted people’s priorities, and now, to safeguard themselves against future long-term diseases, they are opting for coverage ranging between INR 500,000 and INR 10 million.

“During the pandemic, some doctors charged exorbitant fees, going as high as INR 100,000 for a single consultation. This left many struggling to afford medical care, causing their health to deteriorate. Earlier, people typically opted for insurance coverage of just INR 50,000, but the crisis served as a wake-up call. Now, to safeguard themselves against future health emergencies, they are choosing coverage ranging from INR 500,000 to INR 10 million,” Anand tells Media India Group.

This growing awareness is also reflected in rising insurance premiums. According to a survey conducted by Noida-based organisation LocalCircles, which gathered inputs from 11,000 people across 324 districts in India, around 52 pc of health insurance policyholders experienced a 25 pc increase in premiums over the last 12 months in 2024. This surge further highlights the increasing preference for health insurance in recent times.

Digitalisation: A Game Changer for insurance health sector?

Sneha Verma of Global Data also believes that besides growing expenditure and increasing risk of lifestyle diseases, the ease of insurance accessibility especially due to digitalisation, has played a huge role in sector’s rapid growth.

For instance, digital access allows insurers to reach people across geographical locations including rural areas, where traditional agents might not be ready to travel to these areas.

Additionally, insurance companies leverage advanced technologies such as data analytics and AI algorithms to design customised health plans based on individual risk profiles and health needs. This reflects the adoption of disruptive technologies by insurers to stay competitive, ultimately driving the growth of the insurance sector.

But more than the technology, the ease of accessing medical help also drives the boost in the health sector.

Harsha Shetty, a health insurance customer for five years from Karnataka’s Madikeri, emphasises hassle-free medical access during emergencies as the key reason for opting for insurance over the years.

“Health insurance helps avoid unnecessary hassle, especially during medical emergencies. I once injured my shoulder and was hospitalised for 10 days. When it came time for payment, I simply claimed my insurance without spending a single rupee. The entire process was smooth and worry-free, making a stressful situation much easier to handle,” Shetty tells Media India Group.

Limitations of health insurance sector

But despite various advantages of the sector and its rapid growth, the sector continues to be plagued by certain limitations.

For instance, health insurance premiums can be expensive, and as per users, who utilise these services, it can eat into the financial budget of an individual and even families.

“My expenses toward insurance premiums have been rising without availing any benefits. For retired individuals like me, it feels like a heavy annual burden, making it a significant expense to manage,” adds Chopra.

“It is a major expense in the annual budget,” adds Bhatija. Additionally, the sector as a part of the broader insurance industry also faces a lack of trust due to the presence of underserved markets and misinformation, thus preventing officials from gaining the trust of the people, especially during the time, when cybercrime in today’s time is rampant.

The biggest limitation that continues to plague the sector is the long waiting period. For instance, according to insurance blogs, some health insurance does not cover pre-existing illnesses immediately, and usually you have to wait for like 3-4 years, before making claims for these conditions.
Hence, during this period, the affected person even if sick would not be covered thus leaving people exposed to uncertain health future and upcoming medical costs.

But despite these limitations, people continue to opt for health insurance, as long-term financial security remains a key factor driving their decision. As the sector evolves, addressing affordability and transparency will be key to ensuring broader adoption and financial security for all.