MUMBAI: The CEO of Niva Bupa Health Insurance has pointed to cross-subsidization as a critical factor impeding the growth of retail health insurance in India. According to Krishnan Ramachandran, Managing Director and CEO of Niva Bupa, it is not the high acquisition costs but rather the subsidization of loss-making corporate group policies by retail health insurance that is weighing heavily on retail insurance penetration.
Investment in Retail Health Insurance is Essential
Ramachandran emphasized that insurers must increase investments to expand retail health insurance and boost its share relative to the group health business, which typically operates at high loss ratios. He stated that sustained investment in distribution and customer acquisition is crucial to add covered lives in a market that remains deeply underpenetrated.
Long-Term Value for Customers
He highlighted that customers who stay with an insurer beyond the initial years receive significant value, with claims payouts exceeding Rs 80 for every Rs 100 of premium collected after the early policy years. “Globally, a medical loss ratio of 75–80% is considered fair value,” he said, noting that blended ratios appear lower only due to rapid new customer acquisition, where early-year claims are structurally lower.
Debate Over Acquisition Costs
These comments come amid a debate sparked by the Economic Survey over high acquisition costs and management expenses in health insurance. Ramachandran argued that such costs are intrinsic to a retail-led market like India, where awareness, advice, and physical presence are essential. “If the goal is to increase coverage and add lives, companies must invest upfront,” he said, pointing out that India has one of the highest proportions of retail health insurance globally but remains massively underpenetrated.
GST Impact on Health Insurance Sales
Niva Bupa has seen health insurance sales accelerate after the reduction in GST in October. Momentum strengthened from October through December, with December growth being even better, and January also looking very healthy. “All our Q3 numbers are signalling that GST has been one of the key reasons for the acceleration in growth. Q3 volume growth was 29%, while value growth was 15%, which means ticket sizes increased materially in the quarter. This was a sharp improvement over the first half, and GST has clearly played a role,” the company stated in its earnings call on Friday.
Offsetting GST Costs
Lower medicine costs following GST-linked price reductions are helping health insurers offset the impact of taxes on input services, which insurance companies now have to bear as there is no GST on the final product to offset the taxes on inputs. However, in the case of commissions, the burden of GST is fully passed on to agents. Ramachandran explained that the effect of GST on insurers needs to be seen in two distinct parts—commissions and other input services. “On commission, we have been clear and the data has also demonstrated that commission has been passed on,” he said, referring to the input tax credit impact after GST on the final health insurance product was withdrawn from October.
Cross-Subsidization Issue
Ramachandran identified another burden on retail policyholders: the high claims ratio on group insurance policies. “Public data shows that the loss ratio in corporate covers is over 100%. In effect, retail policyholders and taxpayers are subsidising group insurance for large corporates,” he said, calling this a significant policy issue that needs addressing.
Long-Term Solutions and Industry Challenges
According to Ramachandran, the long-term solution lies in expanding retail health insurance coverage. “Health insurance is an essential good. It is the single largest reason why Indians become poor even today,” he argued, advocating for wider mandates for those who can afford coverage, alongside subsidies for those who cannot.
He stressed that insurers need to continue investing heavily to build distribution and service capabilities, even if this keeps expense ratios elevated in the near term. Niva Bupa has invested about Rs 2,800 crore of capital to build scale in a retail-led market. “Without physical and advisory reach, lives will not get added,” he said, drawing parallels with banks opening branches to acquire and serve customers.
Future Outlook
Looking ahead, Ramachandran said Niva Bupa expects margin improvement over time, supported by disciplined underwriting and claims management, even as technology and AI-led investments continue across the value chain. The challenge for the industry, he noted, is to balance near-term costs with the longer-term objective of improving insurance penetration in a market where hundreds of millions remain uncovered.
The bigger constraint for the industry remains low insurance penetration and the need for sustained upfront investment. Ramachandran’s insights underscore the complex dynamics at play in India’s health insurance sector, highlighting both opportunities and obstacles in the path to greater coverage.
