The cost of health insurance premiums has surged dramatically in recent years, forcing many policyholders to either downgrade their coverage or abandon their policies altogether. Since the onset of the COVID-19 pandemic, the average premium per policy has increased by an astounding 73%, while the total sum assured has grown by 240%. These changes highlight a shifting landscape in India's health insurance sector, driven by medical inflation and heightened awareness of financial preparedness.

Why Are Health Insurance Premiums Rising?

The sharp rise in premiums can be attributed primarily to a worsening claims ratio—the proportion of claims paid out compared to the total premiums collected. Insurers adjust premium rates periodically, typically every three years, to accommodate the increasing costs of medical treatments. Additionally, health insurance premiums tend to increase more significantly as policyholders age, with steeper hikes in later years reflecting the higher medical expenses associated with older individuals.

Over the past decade, more than half (52%) of policyholders have seen their health insurance premiums grow at a compound annual growth rate (CAGR) of 5-8%. This translates to a Rs 100 premium rising to Rs 162-225 after ten years. Another 38% experienced a CAGR of 10-15%, meaning their Rs 100 premium increased to Rs 259-404. A smaller percentage (3%) faced even steeper hikes, with their premiums rising at a CAGR of 15-30%.

The Impact of COVID-19 on Consumer Behavior

The pandemic has significantly influenced consumer attitudes toward health insurance. The demand for higher coverage has surged as individuals seek financial security in the face of unforeseen medical emergencies. The total sum assured in health insurance policies has grown by 240% over the past five years, driven by increasing medical inflation, which currently stands at 14% annually.

This growing awareness is particularly evident in smaller cities, where health insurance premium costs have jumped by 73% since 2020. Consumers in Tier 2 and Tier 3 cities are now prioritizing broader coverage, reflecting a fundamental shift toward long-term financial preparedness.

Challenges Faced by Policyholders

Despite the increasing importance of health insurance, rising premiums are making it difficult for many to sustain their coverage. One in ten policyholders has missed out on renewals this financial year, and about 10% have seen their renewal costs rise by over 30%—of which only half managed to pay the full premium.

In a concerning trend, over two-thirds of policyholders have experienced premium hikes ranging from 50% to 200% in just three years. A survey conducted by LocalCircles, which received nearly 18,000 responses, revealed that:

• 8% of respondents saw their premiums rise by 200% or more.

• 16% experienced hikes between 150% and 200%.

• 13% faced increases between 100% and 150%.

• 30% saw their premiums rise between 50% and 100%.

Senior citizens, in particular, are struggling with the surging costs. Many, like 61-year-old Rajiv Matta, have voiced concerns about the disproportionate rise in premiums despite not making any claims. In response, the Insurance Regulatory and Development Authority of India (IRDAI) has stepped in to curb excessive hikes for elderly policyholders, mandating that insurers cannot increase premiums by more than 10% per year for those aged 60 and above without prior approval.

Future Outlook : Medical Inflation and Regulatory Changes

With medical inflation running at 14% annually, the Indian health insurance market is projected to reach Rs 2 trillion ($23.8 billion) by 2028. The future of premium pricing will also be influenced by evolving risks such as air pollution. In Delhi, insurers are considering a 10-15% increase in health insurance premiums to account for the surge in pollution-related claims. If approved by IRDAI, this would set a precedent for factoring environmental risks into premium pricing across other cities.

Regulatory interventions and a growing emphasis on financial preparedness will play a crucial role in shaping the future of the health insurance industry in India. While the market continues to expand, addressing affordability concerns remains critical to ensuring broader access to quality healthcare coverage.