MUMBAI: The CEO of Niva Bupa Health Insurance said it is the cross-subsidization of loss-making corporate group policies by retail health insurance, rather than high acquisition costs, that is depressing retail insurance penetration.Krishnan Ramachandran, MD and CEO of Niva Bupa, says insurers need to step up investments to expand private health insurance and increase their share against the group healthcare business, which typically suffers from high loss ratios. According to Ramachandran, sustainable investments in distribution and customer acquisition are essential to create covered lives in a market that remains deeply underpenetrated.He said customers who stay with an insurer beyond the initial years receive significant value, with claim payouts of more than Rs 80 for every Rs 100 of premium collected after the initial policy years. “Globally, a medical claims ratio of 75-80% is considered fair value,” he said, adding that blended ratios only appear lower due to rapid new customer acquisition, while claims are structurally lower at the beginning of the year.The comments come amid a debate sparked by the Economic Survey over the high purchase and management costs in health insurance. Ramachandran argued that such costs are inherent in 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 need to invest upfront,” he said, noting that India has one of the highest rates of health insurance in the world but is still vastly underpenetrated.According to him, the long-term solution lies in expanding private health insurance coverage. “Health insurance is an essential commodity. It is the biggest reason why Indians are becoming poor even today,” he said, calling for broader mandates for those who can afford coverage, in addition to subsidies for those who cannot.Niva Bupa has seen health insurance sales increase following the GST cut in October. Momentum strengthened from October through December, and growth in December was even better. January also looks very healthy. “All our Q3 numbers indicate that GST has been one of the key reasons for the acceleration of growth. Q3 volume growth was 29%, while value growth was 15%, meaning ticket sizes increased significantly in the quarter. This was a sharp improvement from the first half and GST clearly played a role,” the company said in its earnings call on Friday.Lower drug costs due to GST-related price reductions will help health insurers offset the impact of taxes on input services that insurance companies now have to bear because there is no GST on the final product to offset the taxes on inputs. However, in case of commissions, the burden of GST is fully passed on to agents. The biggest barrier to the sector remains low insurance penetration and the need for sustained initial investment. Speaking about recent changes in regulations and taxes, Ramachandran said the impact of GST on insurers should be seen in two different parts: commissions and other input services. “On the commission, we have been clear and the data has also shown that the commission has been passed on,” he said, referring to the impact of tax credits after the GST on the final health insurance product was withdrawn in October.On other services, he said the increase in costs due to having to absorb the cost of GST for services availed by the company was offset by savings on the claims side, especially through lower drug prices. According to Ramachandran, another burden on the private policyholder was the high claims ratio on group insurance policies. “Public data shows that the loss rate for business coverage is more than 100%.” In effect, private policyholders and taxpayers are subsidizing group insurance for large corporations,” he said, calling this an important policy issue.According to him, the long-term solution lies in expanding private health insurance coverage. “Health insurance is an essential good. It is the biggest reason why Indians are becoming poor even today,” he said, calling for broader mandates for those who can afford coverage, in addition to subsidies for those who cannot.Ramachandran said insurers must also continue to invest heavily to build distribution and service capabilities, even if this keeps expense ratios high in the short term. Niva Bupa, he said, has invested around Rs 2,800 crore of capital to build scale in a retail-led market. “Without physical and advisory reach, lives will not be gained,” he said, drawing parallels to banks opening branches to acquire and serve customers.Looking ahead, he says 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 said, is to balance short-term costs with the long-term goal of improving insurance penetration in a market where hundreds of millions remain uncovered.
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