Health Insurance Article

Health insurance has emerged one of the fastest growing segments in the non-life insurance industry with 30 per cent growth in 2008-09. For the purpose of regulation, health insurance companies are classified as non-life companies. Health insurance is the fastest-growing segment in the country with annual premium collections of over Rs 6,000 crore. But despite the high growth, the business is a huge challenge for insurers because of the high losses over soaring medical expenses.

A survey showed massive dissatisfaction with the healthcare system. The interesting find about health insurance in India was how people perceive health insurance in India. It is seen as an instrument to protect savings. It is not aimed at protecting the asset that is health. This is probably common to developing markets, where people tend to place wealth ahead of health. On a macro level, very few households in India have contingency plans to meet their health expenses. Health risks in India are perceived differently than the western population. Prior planning in health issues is yet to be a major priority.

With a reach of just about 2% of the country’s 1.2 billion population, India offers a huge potential in health insurance market. There are over 30 health insurance products in the category offered by both life and non-life insurers. While ICICI Lombard, Bajaj Allianz and Reliance General are some of the prominent general insurers in the health insurance space, Apollo DKV, Star Health & Allied Insurance are the standalone players.

The industry is also becoming tech-savvy with facilities to buy certain types of insurance products online and payment of premium through Internet. The insurance penetration level in India is very low when compared with the global average. This has brought about a plethora of distribution channels such as agents, brokers, bancassurance avenues, soliciting insurance through Internet or direct mailing. Many banks, financial institutions and insurance intermediaries saw a huge opportunity in marketing insurance products. Insurance brokers play a vital role in bringing together insurance companies and the insured, and their role assumes importance when a claim arises.

The brokers are becoming professional risk managers. There is also a likelihood that banks would soon be allowed to sell products of more than one company, as regulations governing bank distribution are being reviewed by the regulator.

Health treatment nowadays is very costly. More than the disease it is the cost of treatment that takes its toll. To get rid of health worries health / medical insurance is the answer. But over 70 per cent of these spends are out of pocket which leads to lot of hardships. According to a survey by NSSO (National Sample Survey Organization), 40 per cent of the people hospitalized have either had to borrow money or sell assets to cover their medical expenses.

A significant proportion of population may have had to forego treatment all together. Hence it is imperative that the health insurance coverage is increased. Increasing incidence of lifestyle diseases and rising medical costs further emphasize the need for health insurance. Health insurance policy not only covers expenses incurred during hospitalization but also during the pre as well as post hospitalization stages like money spent for conducting medical tests and buying medicines. The cover will be to the extent of the sum insured.

Health insurance premium collections touched Rs 6,625 crore in 2008-09 compared with Rs 5,125 crore in the previous year. Health insurance is now the second biggest segment after motor which contributes nearly 40 per cent of the total premium. Health contributes about 22 per cent of the total premium. It is also emerging as a significant line of business for many insurance companies which now have products in health insurance.

Apart from increased public awareness the growth in the segment was also being driven by the Central and State governments taking up large-scale insurance programmes such as the Rajiv Arogyasri Scheme in Andhra Pradesh and the Kalaignar Scheme in Tamil Nadu. Life Insurance Corporation of India is targeting to provide health cover to close to 10 million families in the 1 year of the operation / launch of the product and expects over Rs 4000 to 5,000 crore of revenues.

Currently, the IRDA guidelines prohibit health insurers from denying fresh mediclaim policies to individuals above 65-year-old. National Council for Older Persons (NCOP) wants this age limit to be increased. The council recommended providing insurance cover to senior citizens travelling overseas, irrespective of their age. The ministry of social justice and empowerment has asked the insurance regulator to direct non-life companies to relax entry barriers for senior citizens seeking to buy health insurance and overseas mediclaim policies.

The council also sought a status update from IRDA on the steps being taken to address the issues relating to senior citizens’ health policies. Widespread complaints from senior citizens on non-renewals and disproportionate hiking of premiums had prompted IRDA to tweak the rules on renewability in March this year. The insurance regulator had asked insurers to ensure that renewals were not turned down, except on the grounds of fraud, moral hazard or misrepresentation.

Furthermore, the companies had been asked to furnish a note explaining the reasons for increasing the premiums and also, how the rise was in line with the charge structure mentioned in the policy’s prospectus.

At present, many insurance companies are reluctant to provide health cover to senior citizens. There are many senior citizens complain of health insurers rejecting renewal requests and charging unreasonable premiums. A circular issued in May by IRDA had directed insurance companies to specify in writing the reasons for denying health insurance to senior citizens. Such reasons should stand scrutiny of reasonableness and fairness. In addition, the insurance regulator had instructed insurers to ensure that the premium charged to senior citizens was ‘fair, justified, transparent and duly disclosed upfront.

Product innovation is also apace. In 2008-09, products with new features such as high-deductible hospital indemnity and products offering cover for maternity, dental, outpatient expenses, etc were also introduced in the market. Most life insurers have also taken the lead to offer innovative products in the critical illness and defined benefit hospitalization space. Health insurance companies are offering innovative products to their customers these days.

The latest product in this line is ‘cashless hospitalization’. Here individuals do not have to pay for their hospital bills in case of hospitalization; the insurance company settles the bill directly. But certain conditions like the hospital needs to have a tie-up with the insurance company, the documents need to be in order etc. have to be met.

The insurance penetration level is negligible in India. More than 6 crore insurance policies are sold every year in India – of which over 3 crore policies relate to motor and health insurances. The lack of overseas exposure has in a way insulated the domestic insurance players from being inundated with claims. The insurance sector, from being a fiefdom of public sector undertakings, has become a land of opportunities with the entry of a large number of private insurance companies.

There are 23 life insurance companies and 22 general insurance companies, leading to intense competition. Both Life and non-life insurance companies are selling Health insurance products. There are 16 non-life insurance companies that sell health insurance policies. Current rules permit up to 26 per cent FDI in insurance companies. While it is too early to comment on the premiums, we can expect life insurance companies to have a strong presence in health insurance in the years to come.

There are only two stand-alone health insurers in the country — Apollo DKV and Chennai -based Star Health and Allied Insurance company. The coming months would see the formation of three to four pure health insurance companies as global health insurance players with Discovery of South Africa, Cigna and Aetna of United States in talks with domestic players to form joint ventures. Max Bupa Health Insurance Company, a tie-up between Max Healthcare and UK based insurer Bupa is already at the licensing stage with the insurance regulator.

Cigna has given a mandate to consulting firm Ernst & Young and is currently in talks with a large bank in addition to a hospital chain. Discovery and Aetna are holding talks with Religare Enterprises. In a year, there may be 4-5 active standalone insurers in the Indian market. Global health insurance giants have expressed an interest in partnering Axis Bank, the country’s third-largest private lender, for a joint venture in India. The bank has also been approached by life companies, which are offering a stake with an eye on the bank’s distribution network.

An added attraction of Mediclaim policies is the tax benefits which they attract under Section 80D. The maximum amount of deduction available under this section is Rs 10,000. In case of senior citizens, the maximum limit is Rs 15,000. Rs. 15000 can be claimed to be deducted on health insurance under Section 80 (D) and further Rs. 15000 can be claimed for parents. This limit increases to Rs. 20,000 in case any of the Dependant parents are senior citizen. Total amount that one can claim for deduction under sec 80(D)is Rs. 35000/-. It is better if one gets health and medical insurance for oneself, spouse, dependent parents and dependent children.

Health insurance policies in India have also managed to cover people in all age group. These plans and policies cover almost all kind of ailments including accident and other physical problems. Between insurer and insured TPA plays an important role when it comes to ‘Cashless’ treatment. Introduction of Third Party Administrators (TPA) has also proved mighty beneficial for both insurers and insured. The Third Party Administrators industry is also growing.

The number of claims received by the TPAs had gone up to nearly 25 lakh in 2008-09 compared with 19.86 lakh in the previous year. To further improve the TPA system, IRDA is studying the report submitted by its panel on evaluation of TPAs’ performance in May 2009. The IRDA will take a view on the recommendations after examining the report holistically.
Voluntary health insurance will always have lower penetration. In Australia, health insurance is heavily tax subsidized and so there is an incentive to buy insurance. There is definitely a need for greater incentivisation of health insurance.

Around 80-85 per cent of the people are paying cash for medical treatments. This is where the market is. Health insurance market is growing at 30-35 per cent year-on-year and projected to be worth Rs 8,000 crore this year. For Standalone insurers market share is a fool’s pursuit. Profitable growth is what they look at. Contrasting the cashless transaction model followed by rival, LIC’s Health product is based on the lines of floater plan, which gives the policyholder the option to receive a lump sum – which means claims could be made for even treatment at home. The supplementary element is domiciliary claim, where a patient taking treatment at home will be compensated as and when he tenders the comprehensive bills.

However, things are improving gradually. With increasing focus on healthcare and availability of several attractive plans by large number of players, health insurance coverage in India has picked up in recent times. Young professionals are also focusing on proper planning to take care of any future emergency. All in all, Indian health industry is a buoyant sector with lots of potential and scope for expansion.

Corporate Head (Training),
Sriram General Insurance

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