Previously seen as a robust and consistent development story, India's health insurance sector is currently dealing with significant structural issues.

The sector's growth and profitability are being impacted, according to a new research by Elara Capital, which might reshape the nation's health insurers' long-term prospects.

The paper claims that the overestimation of the total addressable market (TAM) for private insurers is one of the main causes of this delay.

A sizable market for private health insurance was already predicted by numerous experts.

However, the real market accessible for private businesses has shrunk due to the growth of government-sponsored health programs that provide extensive coverage. Private insurers have found it more challenging to expand at the previously anticipated rate as a result.

At the same time, the growing competition in the industry is increasing pressure. The report indicated that elements such as a shift in policy preferences towards older or vintage policies and the rising bargaining strength of hospitals and insurance distributors are impacting the profitability of health insurance companies. These developments are capping the profit margins of insurance providers.

The report also mentioned the entry of LIC into the health insurance market, along with other life insurance firms anticipated to enter via composite licenses. This will escalate competition and potentially restrict growth opportunities for traditional standalone health insurers (SAHI).

Given these challenges, the report recommended that investors adjust their long-term growth expectations for the health insurance sector downwards.

 

Instead, they should concentrate on more resilient areas such as third-party administrators (TPAs) and diversified multi-line private general insurers, which generally possess stronger business models and improved profitability.

Another issue is the increasing cost of claims. The report noted that following COVID-19, there has been a shift in attention toward critical illnesses such as cancer and heart conditions. This has resulted in a higher frequency and severity of claims, exerting additional pressure on insurers.

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In conclusion, the report emphasized that India's health insurance sector is experiencing a fundamental transformation. While traditional players may encounter restricted growth, new opportunities are emerging in niche segments with more favorable economics.