SME’s and Employees Health Insurance

India has about 63 million MSMEs which employ 330 million people and contribute to 30%+ to India’s GDP. Only 5 percent of these firms provide health insurance to their employees. The key reasons for this are attributed to the following:

  • MSMEs paying less attention to health insurance owing to high premiums. The small employee base of most of the MSMEs fuels this further
  • Lack of understanding of health insurance products due to low financial literacy
  • Most of them operate in unorganized sector

Some of these underlying factors are changing driven by a sudden spurt of diseases and rising healthcare costs. Post Covid-19, SMEs have started looking into healthcare benefits for their employees more seriously. These benefits serve as a retention tool for their employees and drive employee satisfaction. With the push from government towards mandatory health insurance, the industry is poised to benefit from such tailwinds.

On the other spectrum of companies, enterprises and new-age companies are seen providing their employees with a bouquet of wellness features in their corporate healthcare subscription plans focussing on the physical and mental well-being of the employee and the families. This includes annual health check-ups, access to health care membership for the elderly, etc. These companies see such benefits as an investment rather than a cost.

From a market sizing perspective, the space presents a big opportunity given the penetration of health Insurance in India is 0.28% compared to 4.6% of USA and 0.7% of China. According to the MSME employment database, there are 6.1Cr people employed in urban areas with MSMEs. Considering an average premium of ₹3,000, the market opportunity in this space is ~ ₹18,000Cr GWP. This market size is considering predominantly IPD (in-patient department) insurance which is the product largely prevalent with SMEs. OOPE (out of pocket expenditure) as a % of health expenditure is about 63%, OPD insurance could further push this market opportunity size to ₹30,000Cr – ₹50,000Cr GWP. We expect that one of the biggest beneficiaries of the growth in this space would be distributors, who understand the sales mechanism of Insurance products.

Currently the enterprise market is being served by traditional brokers such as Marsh, Aon, etc, and the mid-market companies are serviced by regional small brokers. Most of the large traditional brokers service clients for renewals and have limited interface in the areas of claims. The claims related services are provided mostly by the TPA providers (IRDA registered entities).

We believe that the market presents a strong opportunity for an end-to-end brokerage service provider including claims in the SME space. New-age technology platforms such as Onsurity, Nova-Benefits etc are trying to solve these problems by ensuring high level of serviceability through economies of scale. They serve the market with customised features and bundled subscription models. They help the SMEs/Enterprises to navigate through the process (onboarding, quote generation, claims management) with minimal intervention at their end. Employees are also empowered to understand more about the insurance products.

The biggest advantage of these platforms is that group health insurance and wellness benefits become affordable as they are purchased in bulk. It gives the insure-tech leverage to negotiate with the insurance companies for better pricing. From the insurance company’s perspective, this helps diversify the risk of SMEs and maintain better loss ratios

The opportunity of the space is immense in terms of size, which still nascent in terms of maturity. The experience of insurers in the SME space has been laden with high loss ratios due to the challenges in underwriting (due to fraudulent activity, high serviceability, adverse customer selection, etc). We believe that there could be interesting business models that leverage partnership model to augment underwriting for insurers and also solve for the risks through diversification  and aggregation of MSMEs).

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