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Health Insurance Industry- Startups vs Industry Giants

Posted in Finance Articles, Total Reads: 1566 , Published on July 09, 2016

Indian insurance industry has witnessed a substantial growth in last few years, so do the health insurance industry. The growth in health insurance sector is likely to continue with rapid pace in 2016. The CAGR in 2015 was 33.2% as compared to 2013, because the number and awareness of insurance coverage has increased among the consumers. This industry covers second major sector in the non life insurance market which is 27.7%. The increase in number of coverage among customers because of the changing trends steers the growth in this sector.

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The new IRDA regulations are focused on the public interest rather than only making profits. Online sales channel, different type of insurance (specialized insurance), adoption of the global strategies and introduction of the health insurance portability has attracted the considerable number of customers, so do the outside industries and entrepreneur.

IRDA has also reduced the start up capital for the health insurance companies from $21million to $10 million. The health insurance coverage in expected to cross 630 million by 2016 making this industry irresistible for private players, and there is a scantiness of government players. Private players’ coverage is estimated to grow 15% by 2020.

The economy is growing as well as there is a remarkable growth in health insurance industry making it an attractive platform for new investors. But the question is what challenges these new start-ups are facing or will face? And what steps big brands should take? As the government firms in India are active in health insurance industry and start ups are changing the tides in health insurance. New players like HDFC health insurance, Teacher’s health insurance are providing different types of premiums and specialized policies to attract the customers and creating a big buzz of problem for the existing firms. But, there are few challenges that can slow down the pace of growth and further penetration of new comers in the insurance industry. They are- First is the hospital related issues – Different rates of similar kind of services in different hospitals, overcharging the insured person by some other service provider which leads to bad word of mouth. Second challenge is insurance related issues- The average premium is too low on the developed countries which is about two to three percent leading to very low profit margins for the insurance providers, very less competition in the market leading to the inadequate range of products and less awareness among the customers. Third is the policy holders- this industry is very much volatile to the fraudulent. On the other hand the new comers in the industry with better and new policies are attracting the existing and potential customers of the big firms.

Taking example of US companies Oscar Health & Harken Health.

Oscar Health is an example of a newcomer that has kept on producing generous buzz in the course of recent years. Established in 2012 and with a present valuation approximately $3 billion, the organization profited by tending to basic customer torment focuses: complex items, obsolete frameworks, and confuing clarifications. At first centered around New York and New Jersey, in 2015 the organization ventured into Texas and California also, developing national enlistment from 40,000 in 2015 to 145,000 individuals in 2016.

While picking up acknowledgment in the business, Oscar had its own share of difficulties. Growth in terms of insurance coverage has been moderate. The organization recently got $400 million in financing from Fidelity Investments; but according to the latest state administrative sources indicates that organization lost $105.2 million in New York and New Jersey, because of costly health system contracts. Lately the organization has changed their strategy from big; far reaching systems to concentrate more in narrow hospital network that permit the organization to remain price competitive in the commercial market. But the question is still the same whether this changed strategy will be able to attract the same number of customers for the organization.

Then again, UnitedHealth Group, an organization with 42.3 million clients across the nation, and traditionally centered on large employer groups, is investigating approaches to achieve that same individual buyer that Oscar Health plans to pick up. In any case, as different as the two organizations seem to be, United Health care has confronted almost the same misfortunes in income, with a $475 million loss. The idea is that whether the start-ups of the big brands both of them facing the same situations but it is important to know that how these companies are handling the situations. The big brands are trying to reach their already made loyal customers by starting the new subsidiary their main purpose is to restore the relationship with their customers. On the other hand the start-ups are working on the new strategies and policies they can develop to retain their customers and attract the potential customers.

Various countries have different insurance system according to the affordability and the culture of the society. In India short term health insurance provided by the non life insurance providers and the government is dominated. The growth of the industry and individual company is also depends on the policy takers of the country, Now a day’s people getting acquainted with the benefits of the health insurance, as the vulnerability towards the diseases increased due to environmental changes so do the price of the health care in India. But there is difference in the consumer behaviour of the policy holders these days Millennial are much more interested in buying the insurance from the new comers not from the big companies while the Baby boomers are not risk takers they have less trust in the new companies for investing. But millennial generations are more attracted toward the specialized premiums and policies not on the experience and the endurance of the company. This will make the government firms and the big brands of the insurance provider to focus on the variety and the quality of the product they deliver to the customer and will provide the new direction to grow.


This article has been authored by Simmy Nigam from IIM Raipur

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