Need to spend more to grow retail health: Niva Bupa CEO

MUMBAI: The CEO of Niva Bupa Health Insurance said it is the cross-subsidisation of loss-making corporate group policies by retail health insurance, rather than high acquisition costs, that is weighing on retail insurance penetration.
Krishnan Ramachandran, MD & CEO, Niva Bupa said insurers need to step up investments to expand retail health insurance and increase its share relative to group health business, which typically runs at high loss ratios. According to Ramachandran sustained investment in distribution and customer acquisition is essential to add covered lives in a market that remains deeply underpenetrated.

He said customers who remain with an insurer beyond the initial years receive significant value, with claims payouts exceeding Rs 80 for every Rs 100 of premium collected after the early policy years. “Globally, a medical loss ratio of 75–80% is considered fair value,” he said, adding that blended ratios appear lower only because of rapid new customer acquisition, where early-year claims are structurally lower.

The comments come amid debate sparked by the Economic Survey over high acquisition costs and management expenses in health insurance. Ramachandran argued that such costs are intrinsic to 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 must invest upfront,” he said, noting that India has one of the highest proportions of retail health insurance globally but remains massively underpenetrated.

According to him, the long-term solution lies in expanding retail health insurance coverage. “Health insurance is an essential good. It is the single largest reason why Indians become poor even today,” he said, arguing for wider mandates for those who can afford coverage, alongside subsidies for those who cannot.

Niva Bupa has seen health insurance sales accelerate after the cut in GST in October. Momentum strengthened from October through December, and December growth was even better. January also looks very healthy. “All our Q3 numbers are signalling that GST has been one of the key reasons for the acceleration in growth. Q3 volume growth was 29%, while value growth was 15%, which means ticket sizes increased materially in the quarter. This was a sharp improvement over the first half, and GST has clearly played a role,” the company said in its earnings call on Friday.

Lower medicine costs following GST-linked price reductions are helping health insurers offset the impact of taxes on input services which insurance companies now have to bear as there is no GST on the final product to offset the taxes on inputs. However, in the case of commissions the burden of GST is fully passed on to agents. The bigger constraint for the industry remains low insurance penetration and the need for sustained upfront investment.

Speaking on recent regulatory and tax changes, Ramachandran said the effect of GST on insurers needs to be seen in two distinct parts — commissions and other input services. “On commission, we have been clear and the data has also demonstrated that commission has been passed on,” he said, referring to the input tax credit impact after GST on the final health insurance product was withdrawn from October.

On other services, he said the increase in costs due to having to absorb the cost of GST on services availed by the company had been offset by savings on the claims side, particularly through lower medicine prices.

According to Ramachandran, another burden on the retail policyholder was the high claims ratio on group insurance policies. “Public data shows that the loss ratio in corporate covers is over 100%”. In effect, retail policyholders and taxpayers are subsidising group insurance for large corporates,” he said, calling this a significant policy issue.
According to him, the long-term solution lies in expanding retail health insurance coverage. “Health insurance is an essential good. It is the single largest reason why Indians become poor even today,” he said, arguing for wider mandates for those who can afford coverage, alongside subsidies for those who cannot.

Ramachandran said insurers also need to continue investing heavily to build distribution and service capabilities, even if this keeps expense ratios elevated in the near term. Niva Bupa, he said, has invested about Rs 2,800 crore of capital to build scale in a retail-led market. “Without physical and advisory reach, lives will not get added,” he said, drawing parallels with banks opening branches to acquire and serve customers.

Looking ahead, he said 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 near-term costs with the longer-term objective of improving insurance penetration in a market where hundreds of millions remain uncovered.