Rising claims pose challenge for health insurance sector in India, says Jefferies

The health insurance sector may face challenges in the coming months, due to rising claims and increased competition, particularly in the retail sector, highlighted a report by Jefferies.

"Health (approx. 35% of mix) can see pressure in its retail segment from rising claims frequency and elevated competition" the report stated.

The report indicated that India's non-life insurance sector is experiencing significant shifts, the health insurance segment may face challenges as healthcare costs continue to rise and more consumers claim their insurance, and insurers are grappling with increased payouts. This trend could squeeze margins and put pressure on insurers to find ways to manage costs while remaining competitive in the market.

However, for the motor insurance segment, the report draws a promising picture and added that it is entering a promising multi-year upcycle. This positive momentum is expected to benefit large private insurers of the motor segment, who are well-positioned to capitalize on these trends.

"Initiate on Non-Life Insurers Large private insurers are set to gain from multi-year upcycle in motor (approx. 35% of premium mix) led by premiumization of underlying auto mix and moderating competitive intensity" the report mentioned.

The report also added that the motor insurance segment in India is estimated to grow at a compound annual growth rate (CAGR) of 14% over the financial years 2024 to 2027. The key driver behind this growth is the ongoing shift in the automobile market towards higher-value vehicles.

Over the past three years, the average selling price (ASP) of passenger vehicles (PVs) has increased by 41%, reflecting a move towards premium segments. This trend is expected to continue, benefiting motor insurance renewals, which account for 60-70% of the motor insurance premium mix.

"Motor segment amidst a multi-year upcycle (est. 14% CAGR over FY24-27E) as renewals (60-70% of premium mix) will continue to benefit from the underlying change in auto mix towards premium high-value segments" the report added.

Despite these challenges, the report mentioned that the broader non-life insurance market in India remains significantly underpenetrated, with insurance premiums representing only about 1% of the country's GDP. This is relatively low compared to global peers, where non-life insurance to GDP ratios range between 2% and 4%.

However, the Indian non-life insurance market has shown steady growth, with gross premiums expanding at a CAGR of 12% over the past five years, reaching Rs 2.8 trillion (approximately $35 billion). Notably, the private sector has outpaced the overall market.

"India remains an under-penetrated market with non-life insurance to GDP at approx. 1% (vs 2-4% for global peers). Gross premiums have expanded at 12% CAGR over the last 5 years to Rs 2.8tn (approx. $35bn) with the private sector growing faster at 15% CAGR and improving its market share to 68%(from 57%)" said Jefferies in the report.

Despite these challenges, the overall insurance market in India remains underpenetrated, offering significant long-term growth potential for insurers who can navigate these dynamics effectively.