Hesitant health insurers get a regulatory prod to expand coverage

Until recently, Indian insurers hesitated to offer new health insurance products, resulting in its low uptake. Recent Irdai relaxation targets this laggard retail business

Few Indians sport a health insurance cover. This is a good reason why the sector regulator, Insurance Regulatory Development Authority of India (Irdai) wants companies to sell more of this business. As a percentage of GDP (insurance penetration) health insurance is just 0.35. As a measure of social equity the number is abysmal.

All insurance companies selling health have welcomed a gazette notification issued by the Irdai that came into effect from April 2024. It says insurers shall ensure that they offer health insurance products to cater to all the age groups. 

Going by the Irdai notification, there is no cap on the age at which someone can buy health insurance. But even earlier there was no cap. The regulations issued in 2016 noted as follows. Section 12(i) of Irdai (Health Insurance) Regulations 2016 (HIR 2016) reads “all health insurance policies shall ordinarily provide for an entry age of at least up to 65 years”. 

A bald reading of the words makes it clear health insurance must be sold to anyone of 65 years. The next sentence of the regulation makes this more clear. “There are also Health Insurance Products that offer health insurance coverage beyond age 65 years”. So there wasn’t any restriction per se. 

It is nobody’s case that an insurance plan would be the same for all age groups. The premiums and the type of coverage will differ. This was the case till the end of March 2024 and shall be the case now.  

There is a good reason why the insurance companies have gone ga-ga over the new notification. Health is the fastest growing business segment within the non-life insurance business. “Health insurance premiums continue to be the primary growth agent of the non-life insurance industry” notes a report by CareEdge Research which tracks the sector diligently. This has increased the health segment’s market share to 37.7 per cent in FY24 from 33.3 per cent for FY22 YTD. 

The higher market share is despite the lower growth rate of the health business. The report issued in February this year adds that the health segment has grown by 20.8 per cent in FY24, which is lower than the growth of 23.6 per cent for FY23 (year to date).   

So why did the insurance companies read that there was a cap on offering health insurance policies to those above 65 years? This was a self-imposed one and which the Irdai has presumably corrected. 

Business Standard sent out emails to several insurers asking them to specify where the difference was between the old and the new provisions about the age cap. Sharad Bajaj, COO, InsuranceDekho put it succinctly to note that “with the given guidelines, it’s clear that upcoming health insurance products will not have age capping unless curated for specific customer segments”.

But hardly anyone explained why the regulator needed to make the position clear, pointing instead to their plain vanilla statements welcoming the ‘announcement’ by the Irdai. Prasun Sikdar, chief executive of ManipalCigna Health Insurance said, “We welcome the transformative stride taken by the Irdai towards creating inclusivity in the healthcare ecosystem. The removal of the age cap on health insurance policies will provide senior citizens with complete peace of mind, knowing that they have access to quality healthcare when they need it most during the golden years of their life”.

It is evident, however, that Indian insurers have been reluctant till recently to try out new products which will draw in customers. This is the reason why a palpably necessary insurance cover like health has drawn in relatively few customers. 

Data shows the Group Health segment outscores individual policies. The former is easier to sell as one omnibus policy can cover a large number of people in say, a company. The selection of those covered will remain the headache of the HR department of the company. Since people retire mostly at 60 years, the insurance companies did not need to breach the so-called 65 year cap. So of the total health insurance business written in FY24 till January all India, Group Health accounted for 46 per cent. Retail, that is, individual policies were a full 10 basis points lower. A principal reason for this was it wasn’t sold to older people. 

The Irdai relaxation targets this laggard retail business. Companies have to now try to push sales of these policies among the Indian citizens, cutting back the incentive they have for Group policies which remain attractive due to enhanced coverage, and rationalisation of discounts in premiums. 

Irdai has reasons to be concerned. The central government has realised this gap in health insurance coverage. The Ayushman Bharat and other schemes run by the central and most state governments have increased their share to 10.8 per cent within all health schemes in FY24 (year to date) from 9.2 per cent just two years ago, FY22. Since these schemes are mostly run by government-run companies, the private sector was starved of growth momentum. Their annual growth rate had slimmed in FY24. This is the key reason for the shower of appreciation for Irdai. The reason why the insurers issued statements in droves welcoming the Irdai statement is a sign of how the sector has evolved. It has been super cautious despite India’s potential.

In the league of developed nations beyond the government, there is also the sphere of social insurance. Between them and government schemes, these form the largest chunk of health insurance in OECD countries, the league of rich nations. On average private health insurance finances 10 per cent of all health spending across these countries. However, this masks considerable cross-country variation. They account for a third of all health spending in the United States, nearly half in Switzerland and around 60 per cent in the Netherlands. “On the other hand, in around half of OECD countries it accounts for 5 per cent or less of health spending and plays an almost negligible role in the Czech Republic, Estonia and Sweden”, where the governments run the show, notes a March 2022 policy brief from OECD.

As Bajaj noted, “With Irdai’s reforms as our guide, we’re not just rewriting policies; we’re rewriting possibilities”.