Demand for health insurance in India remained strong in FY22, with overall growth of 25%, despite high medical inflation, according to Indian Health Insurance report by Motilal Oswal Financial Services Limited (MOFSL).
Among Asian countries in 2021, India had experienced the highest medical inflation rate of 14%, followed by China (12%), Indonesia (10%), Vietnam (10%) and from the Philippines (9%).
While new customers have been hit by the price hike, existing customers have suffered a double whammy from age-related increases as well as price hikes, according to the MOFSL report. The main factors driving the price hike are medical inflation, unfavorable underwriting experience and increased demand from small businesses as employers realize the need to provide employee protection, according to the report.
Strong demand in FY22 added to a solid base in FY21, where premium growth was 13%. The impact of the second and third waves of Covid resulted in significantly higher loss ratios in FY22, while the severity of non-Covid claims was higher in FY22. Additionally, Covid-related claims represented 6% of total health claims paid in FY21, and are expected to constitute 11-12% of total health claims paid in FY22, according to CIFAR.
From a retail health insurance perspective, plans across all age categories experienced price increases in FY22. There were further price increases of approximately 2% in average up to ₹25,649 in 1QCY22. From a group health insurance perspective, premium price increases have been observed between 5% and 40%, with a median increase of 10%. High loss ratios along with medical inflation have caused insurance companies to raise prices for retail and group health plans.
Meanwhile, the report notes that growth in the retail health insurance trajectory will continue, prices are expected to remain flat barring new waves of Covid.
With only 3.5% of the population covered by retail health insurance schemes, the retail health segment in India remains highly underutilized. The past two years have established the need for peer-to-peer health insurance as well as increasing the sum insured.
However, the industry saw a sharp increase in claims during the first wave of Covid, due to the higher severity of claims. Although claims severity decreased by around 24% during the second wave of Covid, the increase in claims frequency offset this benefit. The impact of the third Covid wave remained limited, with a lower number of hospitalized cases compared to the second Covid wave, but higher non-Covid claims continued to hit the industry, according to the report.