How India's health insurance sector is undergoing a profound shift

The industry has grown in scale and ambition, but outdated reporting norms are being replaced-backed by regulations and market pressure-for better transparency and lasting sustainability

India’s health insurance sector is undergoing a quiet yet profound shift. While headlines often highlight premium growth, digital penetration, and customer acquisition, a deeper transformation is taking place. This change is reshaping how insurers measure performance, manage risk, and build trust with investors.

 

The timing of this transformation is critical. The industry has matured in size and ambition, but the frameworks used to report financial performance have long needed an upgrade. Now, with regulatory backing and growing market expectations, we’re seeing meaningful progress toward greater transparency and long-term sustainability.

 

From an investor’s lens, this is not just about ticking compliance boxes. These changes restore alignment between how insurance businesses operate and how their performance is assessed by shareholders, analysts, regulators, and policyholders. Health insurance is right at the centre of this reset.

 

IFRS Transition: A Step Toward Global Standards

The Insurance Regulatory and Development Authority of India (Irdai) has set a roadmap for adopting IFRS accounting standards by FY27. This marks a fundamental change in how insurers recognise revenue and report profitability.

 

Instead of front-loading income based on when a premium is collected, IFRS encourages recognising it over the actual service period. Metrics like Return on Equity (RoE) and Net Earned Premium (NEP) become far more reflective of underlying business health.

 

For investors, this improves the quality and predictability of earnings. For global allocators and analysts, it brings Indian insurers in line with international peers. Insurers like Star Health, Niva Bupa, and Go Digit are already making strides in this direction. Their early adoption sends a strong message about maturity and intent.

Premium Recognition: Creating a Truer Picture

The way insurers book premiums also matters more than most realise. The older 50 per cent method, where half the premium was recognised upfront, often gave a skewed view of earnings in the early policy cycle. The shift to the 1/365 method, where revenue is spread evenly across the policy term, is a welcome correction. It smooths volatility and gives a clearer sense of actual business performance. Investors get better earnings visibility, analysts gain accuracy, and regulators receive cleaner capital adequacy data.

 

This is one of those technical changes that quietly delivers a big upgrade in reporting quality. It’s also telling that several insurers are choosing to implement it ahead of regulatory mandates. That signals stronger governance and a long-term mind set. Several insurers are implementing this ahead of mandate, signalling stronger governance and long-term thinking.

Long-Term Policy Accounting: Moving Toward Realism

Another important change came into effect from October 1, 2024. Insurers selling long-term policies will no longer be able to recognise the entire premium in year one. Instead, they’ll need to book it year by year.

 

While it may soften short-term numbers, it enhances realism over time. Investors benefit from cleaner revenue arcs. Regulators gain a more accurate view of solvency. Policyholders can trust that revenue aligns with service delivery providing a meaningful step toward sustainable reporting practices.

Expense of Management: Driving Operational Discipline

Under the new norms, Expense of Management (EoM) is capped at 35 per cent for standalone health insurers and 30 per cent for others. This pushes companies to relook at cost-heavy distribution models and embrace scalable, tech-led operations. For investors, EoM is now a key indicator of maturity. It shows how responsibly an insurer is scaling. For policyholders, more efficient companies are better positioned to reinvest in service and pricing.

Composite Licensing: A Blueprint for the Future

Irdai’s proposal to allow composite licensing, enabling insurers to offer life, health, and general insurance under one entity, could be transformative. It opens the door to integrated offerings and seamless customer journeys.

 

Insurers can cross-sell more effectively and simplify distribution. Investors benefit from diversified product portfolios and resilient balance sheets. Regulators can oversee operations more holistically. Customers enjoy a better experience from one insurer instead of three. For digital-first insurers or those with strong bancassurance networks, this could unlock the next wave of growth.

Where This Is All Heading

These changes reflect a genuine effort to modernise the ecosystem. Financial statements will become cleaner. Revenue recognition will become more honest. Cost structures will be managed better and the insurers that adapt early will stand out.

 

As a fund house, we’re encouraged by this direction. We seek businesses that deliver growth with governance, transparency, and foresight. The changes underway today are laying the foundation for the next decade of sustainable expansion.

 

The sector is evolving. And in that evolution lies the real opportunity, not just for investors, but for everyone connected to the industry.

 

The author is the CEO of GoldStandard Wealth and former CEO NJ AMC.  (Disclaimer: These are the personal opinions of the writer. They do not reflect the views of www.business-standard.com or the Business Standard newspaper)