Need for scale in India’s health insurance ecosystem

Need for scale in India’s health insurance ecosystem

Introduction: The next frontier in health insurance efficiency

As India’s healthcare demand accelerates, health insurance will play a pivotal role in ensuring access and financial protection. Government programs and private insurers have both played a key role in expanding health insurance coverage over the past decade. However, the effectiveness of insurance in consistently delivering value to patients remains uneven. The next phase of reform must therefore go beyond expanding coverage to improving how efficiently premiums translate into actual care for patients.

Current scenario: Low coverage, fragmented risk pools, and inefficiencies

Despite recent progress, insurance coverage in India remains limited relative to the size of its population and healthcare demand. While headline figures suggest that around 60% of the population is covered, the level of true health insurance coverage is closer to ~20%, with the remaining largely coming from government schemes. At the same time, a significant share of healthcare spending continues to be financed through out-of-pocket payments.

India’s health insurance ecosystem also remains below global benchmarks on both scale and efficiency. Health insurance premiums through mandatory contribution or voluntary health insurance account for around ~0.5% of GDP, significantly lower than mature insurance markets where premiums can reach ~9–10% of GDP. While premium volumes have grown steadily in recent years, reflecting increasing awareness and expanding participation, overall coverage depth and risk pool size remain limited.

At the same time, inefficiencies in how premiums are utilized further constrain impact. Medical Loss Ratios (MLRs) in India have improved over time, reflecting efforts by insurers to enhance claims efficiency and expand coverage. However, they typically range between 70–85%, compared with 80–90% in developed markets, indicating scope to further increase the share of premiums that ultimately reaches patients. In addition, 15-30% of premiums are absorbed by distribution and administrative costs in some segments, reflecting higher acquisition costs, and operational complexity in a diverse market.

Together, these factors result in a system where a relatively lower proportion of premiums translates into patient benefit, despite ongoing improvements across coverage and operational efficiency, highlighting the opportunity to further strengthen the role of insurance in improving access, affordability, and financial protection.

Exhibit 1: Cross-country comparison of health insurance premium and medical loss ratios

The road ahead: Driving efficiency to unlock scale and impact

Building on the progress made in expanding coverage, improving insurance efficiency presents a significant opportunity to further strengthen the overall healthcare system.

·       Expanding and deepening risk pools: Larger, more aggregated risk pools, through employer-based coverage, government schemes, and platform models, can improve risk sharing and pricing stability, a key feature of efficient global systems.

·       Increasing the share of premiums reaching patients: Improving MLRs through better underwriting, fraud control, and cost management can ensure a higher proportion of premiums directly funds care.

·       Reducing distribution and administrative costs: Digitization of sales, onboarding, and claims processing can significantly lower acquisition and servicing costs- global evidence suggest digital-led models can reduce operating costs.

·       Leveraging technology for claims and fraud management: Use of AI-driven claims adjudication and fraud detection can improve turnaround times, reduce leakages, and enhance trust in the system.

India has made meaningful strides in expanding health insurance coverage, but the next phase will be defined by efficiency, not just scale. Strengthening the insurance ecosystem to ensure that a greater share of premiums translates into patient care will be critical to improving affordability, trust, and health outcomes.

By doing so, India can build a health insurance system that not only protects more people, but delivers consistent, high-quality care when it is needed most.

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