Medical insurance premiums surge by 10-25% due to rising costs, increased demand

Premiums of medical insurance policies have risen by 10-25 per cent over the last year, led by medical inflation, technological innovation, and increased awareness for better healthcare facilities.

The increase by standalone health insurers has been much higher at 15-20 per cent, whereas for general insurance companies has been slightly lower at 10-15 per cent due to their relatively diversified portfolios, industry players said.

“The cost of healthcare services has increased year-on-year driven by technology enhancements and other costs like medicines, medical treatments, and procedures due to inflation. Medical inflation in India is around 15 per cent against CPI inflation of 6 per cent which has increased the costs of claims significantly for the insurance companies,” said Parthanil Ghosh, President, Retail Business, HDFC ERGO General.

“Additionally, private health insurance is predominantly availed by citizens from top tier cities wherein the increase in treatment costs are much higher. This typically results in higher insurance premiums,” he added.

Pressure on medicare pricing started during Covid because of a huge outgo of claims. While insurers expected this to subside post the pandemic, costs have remained elevated given the improved hospitalisation demand, deferred planned procedures, and rise in hospitalisation expenses due to advancements in medical technology and procedures.

“During Covid, medical inflation shot up tremendously. But even after Covid subsided, we have not seen healthcare costs coming down. There was an inflection point in 2019-2020 when there was a massive increase in average claim sizes, and this has not come down,” Dr. Bhabatosh Mishra, Director- Products, Underwriting and Claims, Niva Bupa Health Insurance.

He added that health insurance, unlike life or fire insurance, is a high (claims) frequency business, even though average claim sizes tend to be lower compared to other lines of business.

While most insurers chose to not hike premiums substantially during the period due to the public health crisis and regulatory prudence, the impact is now being felt due to sustained pressure on insurers’ profitability.

“Awareness is going up so people are going to more and better hospitals, resulting in higher costs such as room rent, doctor charges, etc. Because of this ticket size has also gone up and the number and frequency of claims have increased,” said Raghavendra Rao, Chief Distribution Officer, Future Generali India Insurance, adding that costs of treatment have also multiplied significantly due to new technology and specialised treatments.

Thus, despite higher premiums, insurers are seeing strong demand for health products, especially in the premium customer segment, where customers today are looking for more comprehensive coverage rather than for specific illnesses. Insurers peg the increase in average ticket size at 10-15 per cent led by increased awareness about under-insurance, rise in healthcare costs and the preference for more coverage and features, with most policyholders opting for at least a ₹10 lakh sum assured.

“We are seeing growth in the younger demographics compared to older and family floater than individual policies. There is a steady shift from normal Mediclaim to plans which provide benefits like restoration of sum insured, wellness and homecare,” said Jagjeet Siddhu, Chief Distribution Officer, Kotak Mahindra General Insurance.

Insurance companies now expect premiums to stay at the current levels for about 1-2 years before another round of hikes, and more policyholders possibly opt for payment options such as EMI or choose covers with smaller deductibles to off-set some of the impact of the rise in premiums.

With changing consumer behaviour towards personal health, insurance, fitness and nutrition, well-being and health monitoring and check-ups, insurers now expect accelerated adoption of digital technologies, including telemedicine. Going ahead, growth is likely to be led by comprehensive product offerings, which provide higher sum insured considering the underlying medical inflation, cover for costs such as OPD, and other wellness benefits within a single product.

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