Indians face higher premiums on spiralling healthcare costs

Hospital expenses keep rising due to inflation and demand for sophisticated treatments.

People in India face more expensive healthcare this year due to more complicated and costly treatments, rising labour costs, and increasing incidence of chronic diseases, analysts said.

“I don’t see this trend reversing in the next two to three years,” Abhishi Bhatia, an associate partner at management consulting firm McKinsey & Co., told Insurance Asia. “It will continue upward.” 

Insurers are likely to increase premiums to counter the impact of escalating medical costs in India, where these are expected to rise 13.2% this year compared with 12.3% for the Asia-Pacific region, according to a Willis Towers Watson Plc report.

Driving up the costs is advancements in healthcare.

For example, robotic surgeries have increased in the past five years, and more advanced treatments are being adopted, leading to rising costs, Amit Chhabra, chief business officer of general insurance at Policybazaar Insurance Brokers Pvt Ltd., said via Zoom.

He expects hospital expenses to continue rising due to inflation and increased demand for sophisticated treatments. The average cost of hospitalisation had now doubled to $920 (₹80,000) from 2020, he added.

“More complicated treatments are now happening in India,” he said. “Treatments that earlier required people to go outside the country are now being done here.”

Despite a significant rise in health insurance premiums in the past year, new and renewed policies have not decreased significantly, said Amitabh Malhotra, executive director at information technology consulting firm Capco India.

This is true especially for high- and middle-income markets, where there is heightened awareness about the trade-offs of not having insurance, he pointed out. But higher premiums could force low-income consumers to cancel their policies, which could affect insurance penetration in their category, Malhotra said.

India’s insurance penetration fell to 3.7% in the fiscal year 2023 to 2024 from 4% in the previous year, the Insurance Regulatory and Development Authority of India said in a December report. Life insurance penetration fell to 2.8% from 3%, whilst nonlife insurance penetration was steady at 1%.

“The other factor, which is an unfortunate trend, is that we are seeing a lot more incidence of chronic illnesses in the younger population,” Chhabra said, noting that young people are now being treated for heart diseases.

There is a proposal to let insurers offer both life and nonlife products, whilst the government has allowed full foreign ownership in insurance companies – policies that investors are closely watching.

“Over the last few months, we’ve had a massive number of conversations with global insurers, particularly those looking to enter the health insurance space, because they see it as an opportunity to scale quickly in India,” Bhatia said.

Malhotra said state policies that restrict prescription drug prices, enhance the public healthcare infrastructure, and encourage the use of generic medicines could help ease medical inflation.

“People realise that health insurance is mandatory,” Chhabra said. “At the same time, the cost of healthcare is rising, which makes health insurance even more necessary as a product.”

“The next five years are going to be extremely positive for the health insurance industry in India,” he added.

Bhatia called for tempered expectations since India has yet to fully embrace preventive care. “Whilst there is positive momentum, it’s not yet at a level where I believe we’ll see a significant shift in the next two to three years.”