Standalone health insurance companies in India are poised for robust growth in the coming financial years, with India Ratings projecting a 20 percent increase by FY26. This optimistic outlook is driven largely by the sector's aggressive focus on retail health insurance and expanding agency networks, which have helped these insurers outperform their competitors in both public and private sectors.

The findings were presented in a recent India Ratings report, which also shed light on the challenges faced by group health insurance schemes and government initiatives like Ayushman Bharat. Let’s break down the key insights from the report and what they mean for the future of India’s health insurance landscape.

Retail Health Segment Leads the Growth

According to Jinay Gala, Director at India Ratings, standalone health insurers (SAHIs) have been able to capture significant market share by strategically building their retail health insurance portfolio, supported by strong sponsors and expansive agency channels.

The retail health segment is experiencing increasing demand due to rising health risks, lifestyle diseases, and growing awareness among individuals. Unlike group health insurance plans—which are largely employer-funded and face pricing constraints—retail plans offer better margins and long-term customer relationships, making them more lucrative for insurers.

Impact of Medical Inflation and Pricing

A major factor behind this growth is rising medical inflation, which continues to increase the cost of treatment across India. Frequent price revisions in health insurance premiums have contributed to value growth in the segment.

At the same time, awareness among policyholders about the importance of financial de-risking in the face of rising hospital bills is expected to drive volume growth. People are becoming more proactive about buying health insurance, often for entire families, and are increasingly opting for comprehensive policies with higher sum insured limits.

Challenges in Group Health and Government Schemes

While retail health insurance is booming, the group health insurance segment and government-sponsored schemes are facing stiff competition from private general insurance (GI) firms and public sector undertakings (PSUs).

The report highlights that margins in these segments are under pressure, mainly due to aggressive pricing and a high volume of claims. The combined ratio—a key indicator of insurance profitability which adds together loss ratio and expense ratio—for GIs in group and government segments lags behind that of standalone insurers.

This profitability challenge is pushing several companies to rethink their pricing models and underwriting strategies. Meanwhile, Ayushman Bharat, the flagship government scheme, has achieved mass penetration and reduced out-of-pocket expenses, but individual-level coverage remains limited, the report noted.

Loss Ratios on the Rise Post-Pandemic

The loss ratios—which represent the percentage of claims paid out relative to premiums earned—for standalone health insurers have increased by around 200 basis points when compared to pre-pandemic levels. This rise is driven by a combination of higher awareness, increased claim severity, and ongoing medical inflation.

Moreover, frequent price hikes have led many customers to port their policies to more affordable plans, which has introduced volatility in the market. While industry-wide loss ratios in individual health insurance are still below 80 percent, indicating relative stability, they have edged up in FY25, reflecting pricing challenges amid increasing competition.

What is the Combined Ratio and Why It Matters

In the insurance world, the combined ratio is a crucial metric used to measure profitability. It is the sum of two components:

• Loss ratio: The percentage of premium used to pay claims.

• Expense ratio: The percentage of premium used to cover operational costs.

A combined ratio above 100 percent means the company is paying out more in claims and expenses than it is earning in premiums—leading to losses. The India Ratings report found that standalone health insurers have managed this ratio better than general insurers, particularly in group and government health schemes.

Ayushman Bharat: Widening Reach, But Gaps Remain

The Ayushman Bharat Pradhan Mantri Jan Arogya Yojana (AB PM-JAY) has been pivotal in improving healthcare access for millions of Indians, especially in rural and underserved regions. It has significantly reduced out-of-pocket expenditure for beneficiaries.

However, the scheme still lacks deep individual coverage, which affects its ability to serve as a substitute for commercial health insurance plans. For standalone insurers, this represents a missed opportunity for deeper engagement, though they continue to benefit from the overall increase in health insurance awareness driven by the scheme.

Agency Networks: A Major Growth Enabler

One of the standout features of SAHIs is their strong distribution network, particularly their agency channels. By investing in on-ground agents, training programs, and tech-enabled support, these companies have managed to reach Tier 2 and Tier 3 cities—a segment that is still relatively under-penetrated in terms of insurance.

This is in stark contrast to many general insurance companies that rely heavily on corporate or online channels, which often fail to build long-term relationships with retail customers.

Moderation in Claims Post-Pandemic, But Risks Remain

During the pandemic, claim ratios surged due to COVID-related hospitalizations. While these numbers have moderated in FY24, the uptick in FY25 reflects the changing dynamics of customer behaviour, increased healthcare utilisation, and costlier treatments.

Insurers must now navigate a delicate balance between affordability and profitability. Overpricing may lead to customer churn, while underpricing risks eating into margins.

Conclusion: A Pivotal Time for Standalone Insurers

The next couple of years are going to be crucial for India’s standalone health insurance industry. As they gain from a strong focus on retail health, expanding agency reach, and greater public awareness, SAHIs are positioned for rapid growth. However, they must also tackle rising loss ratios, pricing competition, and volatility due to policyholder porting.

Meanwhile, general insurance players in group and government segments may need to rethink their strategies or risk losing further ground. For policymakers, the challenge lies in bridging the gap between mass penetration schemes like Ayushman Bharat and more comprehensive individual health coverage.

If the current trends continue, FY26 could mark a milestone year for standalone health insurers, setting new benchmarks in penetration, profitability, and product innovation.

The Upcoming IPOs in this week and coming weeks are Aten Papers & Foam.

The Closed IPOs are  Infonative Solutions Limited, Spinaroo Commercial Limited,Retaggio Industries Limited.

Start your Stock Market Journey and Apply in IPO by Opening Free Demat Account in .Choice Broking FinX