Indian insurers' lagging underwriting could hit long-term profits: report

Adequate earnings have not accompanied market growth.

Indian insurers’ underwriting results have yet to keep up with the growth of the health business, which could put pressure on profits and solvency in the long term, according to an AM Best report.

Whilst the country’s health insurance market is only expected to grow stronger, supported by a rising awareness and changing demographics, this expansion has not been accompanied by adequate earnings amidst regulatory changes.

The segment has recorded some of the weakest underwriting results in the non-life industry over the past decade, the report said, with the 10-year average loss ratio hovering around 98%. Although this has lessened in the past few years, the ratio still remains at an “unviable” 88% in FY2020.

The prevalence of group health insurance with limited rate adjustment capacity also contributes to the weak underwriting results. These policies comprise a bulk of total health insurance premiums, and non-life insurers usually price them at a large discount to bundle these with other commercial insurance products. Profits from other business lines are often used to balance underwriting losses.

This approach is unsustainable over the long term, the report said, because profit margins of other lines have been spiralling down due to competition. In addition, the new regulation that will promote uniformity whilst expanding on coverage will put pressure on profits.

On the other hand, the full effect of the pandemic has yet to materialise, with the recent COVID-19 surge likely to reduce the number of claims, but insurers may see a higher amount of pandemic-related claims compared to 2020.