Health Insurance Industry Achieves Strongest Post-Pandemic Performance in FY25
The health insurance sector in India has reached its most robust financial position in the five years following the COVID-19 pandemic. According to recent data, the industry-wide incurred claims ratio (ICR) has declined to a post-Covid low of 86.9% for the fiscal year 2025. This marks a significant recovery from the pandemic's peak, indicating improved underwriting health across the sector.
Understanding the Incurred Claims Ratio
The incurred claims ratio is a critical metric that measures the proportion of premiums paid out as claims. In practical terms, an ICR of 86.9% means that for every Rs 100 collected in premiums by insurers, Rs 86 was allocated to cover claims during FY25. This leaves insurers with an underwriting margin of Rs 14, reflecting a healthier balance between premium income and claim payouts.
Group Health Business Remains a Major Challenge
Despite the overall improvement, the industry's performance is weighed down by the group health insurance segment, which constitutes 55% of the total health insurance market in India. The claims ratio for group business consistently exceeds 92%, preventing the overall ratio from being even more favorable. This segment continues to pose significant challenges, particularly for public sector insurers.
Public sector insurers, which dominate the group insurance market, face the most pronounced stress. In FY25, these insurers collected Rs 25,623 crore in group premiums but disbursed Rs 26,548 crore in claims, resulting in a substantial underwriting loss of Rs 925 crore. This data, sourced from the insurance regulator's handbook on insurance statistics, reveals a group claims ratio of 103.61% for PSUs, indicating that claims paid surpassed premiums collected.
Comparative Performance Across Insurer Types
The disparity in claims ratios among different types of insurers is stark. While public sector insurers recorded a group claims ratio of 103.61%, private insurers managed a much lower ratio of 87.79%. Standalone health insurers performed even better, with a group claims ratio of just 67.74%. This highlights the varying degrees of efficiency and risk management across the industry.
Impact of Corporate Bargaining Power
Industry experts attribute the high claims in group health to the bargaining power of large corporations. Larger corporate clients often negotiate favorable terms, leading to a situation where individual health insurance policies effectively subsidize the group business. This is evident from the combined ratio, which includes both claims and management expenses relative to total premiums, exceeding 100% for group health insurance.
Post-Pandemic Recovery Trajectory
The current improvement represents a remarkable turnaround from the pandemic's peak in FY22, when the industry's overall incurred claims ratio soared to 109.12%. At that time, insurers were paying out more in claims than they earned in premiums, creating severe financial strain. Following strategic price revisions and operational adjustments, the claims ratio has steadily moderated.
The ratio dropped to 88.89% in FY23, further declined to 88.15% in FY24, and reached 86.98% in FY25. This downward trend is particularly noteworthy given the context of significant medical inflation that has accelerated in the post-pandemic period, increasing the cost of healthcare services and claims.
This sustained improvement underscores the industry's resilience and adaptability in navigating post-pandemic challenges while maintaining financial stability and growth.
