India’s health insurance sector, which has been experiencing rapid expansion over the last decade, is now facing significant headwinds, according to a recent report by Elara Capital. The report highlights both growth and profitability concerns arising from structural and operational challenges that could redefine the trajectory of the industry.
One of the core findings in the Elara Capital report is the overestimation of the total addressable market (TAM) for private health insurers. For years, the health insurance sector has been seen as a high-growth market, with increasing awareness, urbanization, and rising healthcare costs contributing to the assumption of long-term expansion. However, the rapid scaling of government-sponsored health schemes such as Ayushman Bharat has significantly reduced the portion of the population that relies on private health insurance.
These government initiatives, which provide free or heavily subsidized healthcare to low-income households, have effectively taken a large demographic out of the potential customer base for private insurers. As a result, private players may now be left competing for a much smaller market than previously estimated.
Another key concern raised in the report is the consistent increase in claims across the sector. Healthcare inflation, higher treatment costs, and a rise in chronic illness cases have contributed to growing claim ratios. This trend was already evident during the COVID-19 pandemic and has continued post-pandemic, putting pressure on the profitability of insurance companies.
Rising claims have translated into worsening loss ratios — the proportion of premium income paid out in claims which directly impacts insurers bottom lines. Elara Capital’s analysis suggests that unless this trend is addressed through pricing adjustments or better risk management, many health insurers may find it difficult to sustain profitability.
As Nidhi Verma, Vice President at Elara Capital, points out:
With the expansion of Ayushman Bharat and other state-sponsored schemes, the incremental private TAM is shrinking. Investors must recalibrate expectations from standalone health insurers. Claims frequency remains high post-COVID, and margins are under strain. The sector needs smarter underwriting, not just pricing tweaks. TPAs and diversified players have a better margin buffer. It’s time we separate sentiment from numbers.Nidhi Verma, Vice President, Elara Capital
The Indian health insurance market has become increasingly crowded, with numerous new entrants and aggressive pricing strategies. This has led to greater competition among insurers, especially in metro and Tier-1 cities where insurance penetration is higher. Insurers are also diversifying their product mix, but this comes with added challenges.
Complex health plans, bundled services, and newer benefit structures may help differentiate offerings but also increase administrative costs and customer confusion. These factors have introduced inefficiencies that are eating into margins.
Abhishek Srivastava, a health-tech and insurance industry observer, offers this insight:
Over-engineering of insurance products is leading to more customer confusion than value. Simplicity and transparency are becoming strategic differentiators.Abhishek Srivastava, Founder, Plum
Over-engineering of insurance products is leading to more customer confusion than value. Simplicity and transparency are becoming strategic differentiators. India’s health insurance sector stands at a crossroads — grappling with rising claims, shrinking market assumptions, and operational inefficiencies.
As experts like Nidhi Verma and Abhishek Srivastava suggest, the path forward lies in simplification, smarter underwriting, and recalibrated expectations.
Given these multiple challenges, Elara Capital recommends a strategic shift for investors and stakeholders in the sector. It advises lowering expectations regarding growth from standalone health insurers and instead focusing on more resilient and stable segments like diversified insurance companies or Third-Party Administrators (TPAs). TPAs offer services like claim processing and customer support and tend to have more stable revenue streams, making them a relatively safer investment option in the current landscape.
References:
The Economic Times. “India's Health Insurance Sector Faces Growth and Profitability Challenges: Report.” The Economic Times, June 2, 2025. https://economictimes.indiatimes.com/industry/banking/finance/insure/indias-health-insurance-sector-faces-growth-and-profitability-challenges-report/articleshow/121559196.cms.
LinkedIn News. “Health Insurers Eye a Growth Pill.” LinkedIn News, June 2, 2025. https://www.linkedin.com/news/story/health-insurers-eye-a-growth-pill-6421628/.
(Input from various sources)
(Rehash/Sakshi Thakar/MSM)