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Health insurance is a complex and high engagement product and may be a challenging business for life insurers, said Kotak Securities Ltd in a report.

The report was referring to a news report about a committee set up by the Insurance Regulatory and Development Authority of India (IRDAI) may recommend allowing life insurers to sell indemnity (simply expense reimbursable) health insurance policies.

As per current regulations, life insurance companies are permitted health benefit/lumpsum but not indemnity products.

Life insurers are interested in the well being of its life policyholders, and hence there may be a synergy between life insurance policy and a health insurance policy.

"Health insurance is synergistic to retail term policies. However, health is a complex and high engagement product. It may be challenging for life insurance companies to scale up health in the immediate term; SAHIs (Standalone Health Insurers) will likely continue to gain market share in the interim," Kotak Securities said.

Retail health insurance is a challenging segment with high product complexity necessitating assisted sales and SAHI players with specialised focus on retail health are gaining high traction even as multi-line private non-life players have preferred to stick to the group health business, the report said.

Kotak Securities believes that sales engagement required for retail health will likely remain high and this segment may remain dominated by SAHI players in the medium term.

"Several non-life companies such as Bajaj Allianz and ICICI Lombard have decided to step up in the retail segment; however, this business is highly granular with a high gestation period," Kotak Securities said.

Most of the major private life insurance players are subsidiaries of large banks and non-banking finance companies (NBFC), which also have general insurance subsidiaries offering health insurance.

The multi-line private non-life companies have been a bit guarded on the retail health segment.

"We don't expect life companies to take aggressive stance in the immediate term," the report said.

According to Kotak Securities, health riders have improved realisation for life insurance companies in the past.

"Retail health indemnity complements term insurance; the combined product will provide complete risk solution to the retail customer. We hence believe that life insurance companies will add retail indemnity product to their portfolios even as execution may be challenging given the product complexities and high servicing," Kotak Securities said.