Insurance: Retail health the driver for general sector

Claims are manageable with Covid-19 rise offset by lower normal costs; ICICI Lombard to be key beneficiary of trend

Insurance: Retail health the driver for general sector
A health insurance policy should not be treated as an option but a necessity in today’s life.

General Insurers (GIs) are benefiting from an uptick in retail health insurance that grew by 31% y/y over 4mFY21 leading to a 13% rise in total health insurance. This segment forms 14% of premium & is key to rise in total premiums. Moreover, claims have been manageable (est. 10-15% y/y fall) as rise in Covid-claims is offset by lower normal claims. With low penetration of health insurance we see market doubling in 5 years & will be growth driver for ICICI Lombard.

Strong growth in retail health premiums; private players leveraging better
Health insurance segment formed 34% of industry gross-premiums in 4mFY21, out of which 14% was retail and rest group (i.e. corporate or loan-linked) or Govt.

Retail health insurance has seen a strong 31% y-o-y growth in premiums during 4mFY21 in the backdrop of Covid; even group insurance has seen good trends. Private insurers (diversified) & standalone-health insurers have leveraged this opportunity better with 29% & 47% growth vs 12% for PSUs that are forced to consolidate for want of capital.

Claims from Covid seem manageable
Our analysis of claim costs (normal & Covid-linked) shows that blended impact for the sector seems manageable. We estimate that so far (5mFY21), the overall claim incidence for the sector should be 10-15% lower than normal claims (despite 13% growth in premiums) because the rise in claims due to Covid has been offset by lower claims for normal medical costs. We highlight that in FY20 sector paid c.Rs 330 bn worth of health-insurance claims implying that for 5mFY21 the normalised claim payment would have been c.Rs 140 bn (assuming no growth). Against this, insurers would have paid c.Rs 120 bn (including claim of Rs 26 bn towards Covid) — which is a 10-15% decline. It’s relevant to note that while claims paid are based on actual payouts, ‘claims incurred’ (i.e. charged to P&L) is subjective & insurers have taken divergent policies. ICICI Lombard seems to have been conservative whereas PSU insurers and some standalone health insurers seem a bit aggressive about reserving for health insurance claims.

Retail market set to double in 5 years
As discussed in a recent report, health insurance can emerge as key growth driver in post Covid-era. Low penetration of health insurance is evident from the fact that over 60% of medical expenses are personally incurred by patient. Only 10% of the population has taken commercial insurance (i.e. outside Govt. plans). This segment is sized at over Rs 500 bn in India and over the next five years we see this more than doubling. ICICI Lombard could be a key beneficiary of this uptick, and we expect this segment to be key growth driver.

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