IRDAI is contemplating allowing Life Insurance companies to sell Health Insurance indemnity products, either only distribution or both manufacturing and distribution.
The regulator IRDAI has cited the same is under consideration but no decision has been taken yet.
According to a report by Motilal Oswal Financial services, the primary purpose around this move is to increase the penetration of retail health in the country which stands at only 4%.
The penetration of Retail Health Insurance in India remains weak despite almost 30 players selling such products. Only 4% of India’s population has Retail Health policies.
Out of pocket expenditure accounts for 63% of Healthcare spend. Given this backdrop, IRDAI is looking to quicken the pace of penetration and bring every household in India under the Health Insurance umbrella, said the report.
In the near term, SAHIs (Stand-Alone Health Insurers) will continue to be in an advantageous position if life insurance players are allowed to launch and distribute health insurance products. Retail Health Insurance is dominated by SAHIs, with approximately 53% market share, followed by PSU/Private multiline insurers, with a 23-24% market share.
SAHIs have seen their market share increase to 53% in the fourth quarter of FY22, from 38% in first quarter of FY20, the report added.
In a recent interview, IRDAI Chairman Debashish Panda said the regulator will not implement the same in a rush and will arrive at a decision after thorough deliberations with all stakeholders.
Scope for Life Insurance players
Life insurers see sales of indemnity-based Health Insurance as a large opportunity as they efficiently sell Health insurance products globally. Health insurance products can be complementary offerings along with their Life Insurance products, the report stated.
The underwriting practices will not be materially different for Health Insurance
products as compared to Life Insurance products, and hence companies see no
major challenge in this aspect. The key challenge will be replicating the hospital network tie-ups that SAHIs have established over the years. Life Insurance companies will take a long time to replicate the same, the report added.
Motilal Oswal believes that with regards to capital requirements, existing Life Insurance companies are better placed given their established distribution network, thus requiring relatively less capital.
Some media reports suggest that allowing life insurance players to sell health insurance can be helpful for companies (like ICICI Pru, HDFC Life, SBI Life, Bajaj Allianz, and Aditya Birla Life) having group entities in the Health Insurance space. For other companies, reliance on SAHIs and multiline private general insurers will be higher.
The report highlighted the key takeaways from this move which includes the opportunity that is large enough for both Life Insurance and Health Insurance players to grow together. Some life insurers have past experience in selling these products. The key challenge for life insurance players will be to mirror the claim processing capabilities of SAHIs and in building a hospital network while SAHIs have further advantage in terms of distribution through individual agents and product development. On receipt of the requisite clearance, any meaningful scale up will need a few years.
Advantages enjoyed by SAHIs to continue
In spite of 25 other players (Private and PSU multiline players) selling retail health insurance products, SAHIs have been able to grow their market share to 53% in 4QFY22 from 38% in 1QFY20 in the retail health category. If life insurance companies are allowed to distribute health insurance indemnity products, smaller players, not having a general insurance or a health insurance group company, will scout for partnerships, and SAHIs, given their
scale, will have an upper hand, said the report.
SAHIs, with their distribution reach, especially with individual agents, are well
placed to deliver faster growth. Most of their agents are already selling life insurance products. Over the years, SAHIs have built strong in-house claims processing capabilities and fraud detection mechanisms. They have established strong relationships with hospitals, allowing them to process claims in a fast and efficient manner Building similar capabilities for managing the large number of claims will be a key challenge for life insurers, the report added.