The primary objective of this new issue is to strengthen the capital base, essential to maintaining and improving its solvency levels.

Niva is one of India’s largest and fastest growing insurers in the sector. The company focuses on the health insurance retail market, which currently accounts for approximately two-thirds of its gross written premiums (GWP). As this retail health insurance segment continues to grow, Niva Bupa is well positioned to capitalize on the growing demand for health insurance products. However, it also faces strong competition from other insurers and constant challenges in achieving profitability.

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Balanced income

Niva has demonstrated a resilient and diversified revenue stream, driven by increased technology spending that streamlines operations and improves customer experience. Over the past three years, the company’s gross written premiums have grown at a compound annual growth rate (CAGR) of 41.3%. Its retail segment, which remains the largest contributor, recorded an average growth rate of over 72% between FY21 and FY24, reinforcing the company’s strong position in the market. Additionally, the group business segment witnessed an average growth rate of over 25% during the same period, contributing to the overall upward trajectory.

The company’s commitment to technology is evident in the substantial increase in information technology spending as a percentage of operating expenses. “More than 50% of our new policies are processed digitally without any human intervention, and a significant portion of our cashless claims are now assessed automatically. This end-to-end digital transformation, from digital claim forms to automated medical rule applications, has been instrumental in reducing operational costs,” said Vishwanath Mahendra, CFO, Niva Bupa, in an interview with Mint.

It is distinguished by a wide range of products designed to meet diverse customer needs, complemented by an automated and technology-driven approach to customer service. Known for its strong presence in the health insurance and healthcare sector, the company also has deep expertise in claims and provider management, as highlighted in a research report by Bajaj Broking.

Pressure on profitability

Niva Bupa’s diverse sales channels provide extensive market reach, but also present challenges in maintaining consistent performance. Additionally, the company’s growth ambitions could be tempered by continued profitability pressures. In recent years, it has moved strategically towards indirect sales channels, with a notable increase in broker contributions.

Meanwhile, direct sales saw a slight decline, from 18.8% in FY22 to 13.1% in FY24. “In fact, our direct and agent sales are only not in decline; in fact, they are growing steadily,” Mahendra said. “However, given that our other channels such as digital sales and broker sales are growing at a faster rate, this can create the impression of a slower growth rate in direct and agent channels. It is important to consider our growth in relation to the overall market,” he added.

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Analysts also believe that to boost the company’s growth and capture a greater market share, Niva Bupa should focus on strengthening its distribution network, which is crucial to expand its reach. “Strategic partnerships with major insurance partners, as well as leveraging bancassurance models, will play a key role in this expansion. Improving relations with agents and expanding the distribution network will provide access to new customer segments. By increasing the accessibility of its products and services, Niva Bupa can significantly improve its business prospects and further consolidate its market position,” said Kranthi Bathini, Head of Equity Strategy at Mumbai-based WealthMills Securities.

The insurer’s profitability has been under pressure in recent years. The company reported a significant loss of ₹196.5 crore in FY22, followed by marginal profit of ₹12.5 crores in FY23. While FY24 saw a recovery with a profit of ₹81.9 crores, the recent quarter, Q1FY25, saw a setback with a loss of ₹18.8 million.

Tough competition

Niva Bupa faces intense competition from established players and new entrants, which could erode its market position. Lagging behind its peers on key performance indicators may further hamper its growth.

As of March 31, Niva Bupa reported a net profit of ₹81.9 crores and posted a return on net worth of 5.7%. However, competitors like Star Health, ICICI Lombard and The New India Assurance outperformed Niva in these metrics. Additionally, Niva Bupa’s 9.8% share of the healthcare retail market is smaller than that of its competitors, reflecting a more limited presence in the market.

Bathini sees things differently. “Although Niva Bupa’s current market share is relatively lower, it is important to note that India remains an underpenetrated market for health insurance. “Despite this, Niva Bupa demonstrated significant growth in its overall premium, with a compound annual growth rate (CAGR) of 41%,” he added.

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Mahendra also notes that the company has taken strategic steps to enter new segments, like group insurance, which previously had minimal involvement. “As we start from a lower base, our growth rate in this segment is faster than our overall growth. In terms of market share in the healthcare retail sector, we have seen substantial improvement from 4.2% in FY20 to 9.9% currently, demonstrating rapid expansion across all channels “, he added.

Retail health boom

The rapidly expanding retail health insurance sector presents substantial growth potential for Niva Bupa. As a standalone health insurer, Niva is strategically positioned to capitalize on this growth and strengthen its market presence.

The retail health insurance market in India has become a fast-growing sector. Stand-alone health insurers are experiencing steady growth in the retail health insurance market. Their share in gross direct premium revenue (GDP) of retail healthcare products increased from 40% in FY2018 to 56% in FY24. According to the Redseer industry report, this trend is expected to continue, with their share expected to reach 70-82% by FY29. As a result, GDPPI for standalone insurers is expected to increase from ₹0.06 trillion in FY2018 to ₹0.7 to 0.9 trillion by FY29.

Additionally, retail health insurance GDPPI is also expected to witness remarkable growth from ₹0.16 trillion in fiscal year 2018, for an estimated amount ₹1.0-1.1 trillion by FY29, translating to a CAGR of 18-21%. The share of retail health insurance in overall health insurance GDPI is expected to increase from 43% in FY18 to 46% by FY29, the report said.

At the same time, as the business continues to grow, it must secure sufficient capital to support its expansion. Proceeds from the IPO will help it provide the financial stability needed to fuel growth initiatives by enabling it to meet regulatory solvency requirements. “This will position us well to pursue our long-term growth strategy while effectively managing operational risks,” Mahendra said.