Health Insurance Landscape: Before & Beyond 2020

‘Pandemic providing more opportunities than challenges in Health Insurance Segment.’

Health overtakes Motor:

Year 2020 will forever be remembered as a decisive, dreadful & most disruptive time in the history. The pandemic is still frightening and cases are rising every day. It is scary and it suggests that we have not yet reached the peak. We are among the top worst hit countries by Covid-19. We have learned to live with this fearful situation and this is now the new normal. Pandemic is challenging health insurance industry on various fronts at the same time when the Regulator also brought in many revolutionary changes through next phase of standardization reforms to bring uniformity and transparency in health insurance contracts. Standard retail product and standardized exclusions will surely bring trust back. It will change the face health insurance in India and the balance of power will tilt towards the customers.

Set of challenges are evolving the health insurance industry at very fast pace and these changes are driving transformation in health insurance risk landscape. It is true that evolution never stops and that change is the only constant. The pandemic has changed the way people look at health insurance. The COVID-19 crisis continues to have significant impact on insurers even when they triggered on time their ‘Business Continuity Plans’ in most effective manner andyet when insurers are transiting from respond to recovery phase in their retort to COVID-19.

Pandemic has changed the dynamics of general & health insurers. It has significantly disrupted economic activities in the country resulting in significant business drops thus resulting in shrink in insurance income. Motor segment has been hit worst. It has taken a toll on new premiums as well as renewal premium in Motor Insurance segment in FY 21due to dipped production and reduced economic activity. Motor Insurancethat used to remain the growth navigator at industry level witnessed de-growth of 15.73% in premium volumes till August 2020.This segment which hold the leading position with GDPI of Rs 69,208 crore and which contributed 39.21% share in GDPI of Industry in FY20 lost its top position to Health Insurance Segment when its share shrink to 32.28% of GDPI.

Covid-19, on the other hand increased awareness for health insurance and contribution of health insurance in GDPI increased from 27.67% in FY20 to 33.22 up to August 2020. Retail Health Insurance registered a significant growth of 32.88% in this period to achieve overall growth of 12.97% in Health Insurance space.Thanks to newly launched Corona specific health insurance products that contributed a lot for this impressive growth. For the first time seven Standalone Health Insurers (SAHI) prominently generated more health insurance business than 24 general insurers. While the demand for health insurance has picked up considerably its utilization has also dropped drastically as policyholders avoided elective treatments. Combined effect of both will provides ample opportunities to forward looking insurers to make health vertical an‘aatmanirbhar (self-sustaining) profitable vertical.’ Planned surgeries will eventually happen and claims costs could go up. The insurers should keep this factor in mind especially while rating tailor made products that may produce decreased combined ratios for a shorter term. Year 2020 will also be remembered in time zone as a period when Health Insurance occupied the position of top contributing segment in GDPI of General Insurance sector. Health insurance seems amidst an exciting journey.

Table- 1 INDIAN GENERAL INSURANCE MARKET- August 2020
	Motor	Health	Total
August, 2020	22254	22903	68939
Segment share	32.28	33.22	100.00
March,2020	69208	51638	189302
Segment share	36.56	27.28	100.00
March,2019	64523	45532	164559
Segment share	39.21	27.67	100.00

(Source: GI Council segment wise data report)

Protection Gap between ailment and claims:

The protection gap is a difference between insured losses and uninsured losses or economic losses. This term is generally remembered following a catastrophe to recollect that properties and economies with low insurance penetration takes much longer time and require more government support to recover after a natural disaster. The challenge of under-penetration and protection gap is equally relevant during this pandemic to realize that social and economic cost of being uninsured or underinsured is massive and serious pushing individuals to the vicious trap of poverty. Duration of illness for Covid positive patients is much longer and social distancing and isolation protocol raises the treatment cost exponent. The economic progress and hard earned savings of individuals over decades may get wiped out in meeting uninsured medical expenses out of pocket.

The protection gap as reflected by the level of insurance claims during this pandemic to actual number of corona positive cases expose a serious cause of concern for us. In FICCI conference, Member Non-Life sharedvital information that while the number of COVID-19 positive cases in India was more than 27.7 lacs, the insurance claims intimated up to August 18, 2020 were only about 1.25 lacs. In other words 96% of the COVID-19 affected population was not covered by commercial insurers. This reminds that health insurance penetration is still low in India and those insured are also largely under-insured. This number is proportional and reflect that about 4% of Indian population is covered by commercial insurers. Larger part of covered population is through government health insurance schemes. This protection gap is becoming more pronounced with time when COVID-19 is spreading more to Tier-2 and Tier-3 cities and even to villages as the penetration of health insurance is so minimal to population residing in these locations.

Trends of claim arising from novel COVID-19 has kept its upward momentum in past few months, however, the protection gap has dipped by 1% in past few months after booster sale of COVID-specific health insurance products. A Report in Financial Express suggest that as on 30^th September 2020 3.18 lac Covid related claims amounting to Rs 4,880 crore were intimated to the insurers. On that date India had 62.25 lacs Covid positive cases and so the claimed ratio to ailment improves to 5% from 4% in a month. If the population covered under Ayushman Bharat (PMJAY), CGHS & other schemes is included the percentage of protection gap may improve slightly better but still there remains a threat of larger portion of the population being pushed to the poverty trap as the pandemic spread is still not contained & controlled.

Ayushman Bharat and several State Schemes converged or not with PM-JAY provides health coverage to more than 13 crore households or to 53% of population base. These schemes also provide coverage for treatment of Corona Virus Disease-19. Despite that such huge protection gap exposes the efforts of universal coverage in this segment. The average cost of treatment for Covid is more than Rs one lac (Table-2) and with co-morbid conditions the length of stay and cost of treatment increases manifold. Pandemic may expose such costs to a very large part of the poor and middle class population and that may lead to a situation worst in its form beyond imagination.

Regulatory effort to make available the Corona specific health insurance products at a very low cost even to people with pre-existing co-morbid conditions is very innovative to bridge this gap. These products have been recognized as felt-need products and have provided a booster shot to the health insurance in India. More than 130 health insurance products were approved by the IRDAI in past few months. This is when the industry saw only 500 odd products in last 20 years. The future will see willing health insurers moving from pure indemnity model to wellness models and also offering disease specific and OPD covers that will sharply reduce the ratio of out of pocket expenses for Indians. Health insurance landscape recognizing preventive model from pure curative model will change the dynamics of practicing health insurance.

Increase in claims arising out of COVID-19 is not going to hurt the insurers much in FY 2021 as these would get balanced by non-utilization of health care for the non-COVID treatments as more and more people are avoiding hospitalization for planned surgeries. People are staying away from hospitals for all kind of elective and optional surgeries from last 6 months in this financial year and this trend is going to remain so till the end of this financial year. A Report of ICICI security suggest that COVID-19 claims may be around Rs 10,500 crore at the end of FY21. This may be less than 18% of total health insurance claims at the end of FY-21. At present COVID-19 claims are approximately 12% of total health insurance claims.

Table -2 General Insurance Companies COVID 19 claims ( 11 September 2020)
Insurer ( Name of Insurer is not disclosed )	Reported Claim			Settled			% of reported claim
	Number	Amount	Average Claim cost	Number	Amount	Average claim cost
PSU	38770	6478920907	167111.71	18405	2081459810	113092.08	67.67
SAHI	37500	8618929871	229838.13	29894	2844332611	95147.27	41.40
PSU	36672	3678033949	100295.43	21681	1791003855	82607.07	82.36
PSU	21348	3166456719	148325.68	18405	2081459810	113092.08	76.25
PSU	18489	2861138520	154748.15	12827	1283036630	100026.24	64.64
Pvt Insurer	11386	1157404789	101651.57	6817	665585312	97636.10	96.05
Pvt Insurer	7454	1202374986	161306.01	4174	429660597	102937.37	63.81
SAHI	5225	895459895	171379.88	4562	477097703	104580.82	61.02
Pvt Insurer	4719	567371516	120231.30	2465	256841979	104195.53	86.66
SAHI	3911	718462095	183702.91	3911	405405764	103657.83	56.43
Other Insurers	25864	3799974610	146921.38	10353	578318948	55860.04	38.02
Industry	211338	33144527857	156831.84	133494	12894203019	96590.13	61.59

Gap in Coverage-Indemnity and Medical Expenses in Health Insurance Products:

Health insurance penetration is still low in India and those insured are largely under insured. In India, morbidity protection and coverage gap in insurance products remain high for the fact OPD cover normally is not covered in indemnity products. Further these products limit liability on account of caps, limits of sum insured, co-pay, deductibles and exclusions that require policyholder to meet certain medical expenses out of his pocket for in-patient medical episodes.

COVID-19 was declared a global pandemic by the WHO on March 11, 2020. Since then the scientific understanding of the virus, medical response to deal with its treatment at care centers and action taken by the Government to provide access to health care and tests, efforts by the Regulator to ensure relevant products providing coverage for its treatment and by Insurers to provide financial protection to reduce out of pocket expenses are fast evolving.

Insurance Regulator remained pro-actively engaged with the insurers to protect the interest of policyholders and to drive out common misconceptions about coverage in existing policies it issuednecessary instructions to insurers to clarify and notify themthat pandemic claims were covered in existing health insurance policies. IRDAI also issued guidelines to quickly settle the COVID-19 claims against health insurance policies. However, the contractual liability of insurers is governed by insurance contract. Since the existing health insurance products were not designed to deal with this pandemic and the treatment protocol was unknown, the policyholders were surprised to find that significant share of total care bill was not covered in the policy contract. Apart from it the treatment costs during quarantine at home were also not admitted as liability by the insurers. This increased the share of already high out of pocket expenses much higher on customers.

Personal Protective Equipment (PPE Kit), gloves, sanitization, sterilization, consumables, masks, face shields that are unavoidable to contain the spread of the novel corona virusand which are frequently used in Covid treatments were considered as non-medical items in existing policies and insured patients were not indemnified against costof such consumables . Insurers maintained that these fall under disallowed expenses so were not payable as per the terms and conditions of health insurance contracts.

Non-transparency in hospital billing pattern at the end of hospitals was also observed when PPE and other consumables were subsumed in room rent by some of the providers. Capping of room rent and proportionate linking of associated medical costs further complicated the reimbursements in such cases. Hospitals maintained that apportionment of PPE kit across patients was not medically advisable as these were not used for treatment of multiple patients.Plasma therapy cost was not considered by certain insurers being an experimental therapy. Expenses related to unproven treatments are excluded in health insurance products.

The average cost of consumables in health insurance claims normally remain less than 10% but considering the nature of illness and its treatment protocol the consumable cost for treating COVD-19 patients was found up to 50% of total cost bill. The virus is highly infectious in nature and it is necessary to contain its severity by use of such consumables which remain single use item for its treatment. Longer stay in hospital and social distancing to contain spread significantly raises the cost of consumables.

Further the terms and conditions of the health insurance policies covered only in-patient care and some of the policies provide cover for domiciliary treatment. Disallowed expenses included nebulization kit, steam inhaler and oxygen cylinder outside hospital, gloves & oxygen mask.

Gap in coverage to such an extent created a situation that even those who were having the health insurance policy remained underinsured for substantial share of treatment cost. Trust went missing and grievance shoot up to maximum. Realizing the evolving needs of policyholders and the gap in actual treatment expenses and indemnified protection available in existing products the Regulator quickly recalibrated the product design to bridge these gaps and prescribed two standardized COVID products w.e.f July 10, 2020.

Single Risk COVID-19 Health Insurance Products:

In wake of pandemic the concern of policyholders was recognized by the Regulator and after careful analysis of treatment protocol and prognosis around COVID-19, though evolving and emerging every day, the Regulator designed and prescribed Standard COVID-19 specific policies addressing the basic insurance needs after bridging the gaps observed in indemnity based current health insurance contracts. Corona Kavach is an indemnity product that has to be mandatorily offered by health/general insurers whereas the Corona Rakshak is optional benefit based product. The design of the product is standard with common guidelines across the industry and insurers are allowed only to have price discovery for these standard products based on their actuarial evaluation of standard risk.

There has been lot of interest from the policyholders since from its launch. IRDAI Chairman Mr Subhash C Khuntia while addressing participants at FICCI-FINCON 2020 shared an information that within a month general insurance companies sold nearly 15 lakh standard COVID-19 covers including both indemnity based Corona Kavach and benefit based Corona Rakshak and expressed that the high demand for the standard COVID-19 health cover shows that there is a need for such products in the market. Such standard products create trust in the minds of customers as there is no ambiguity in what is covered and what is not.The growing incidences of Covid-19 cases have made people to prioritize their health. The health insurance awareness is at an all-time high as seen in last decade.

The Corona Kavach plan remains available both on individual & family floater basis. It address the gaps observed in existing health insurance products. Depending on the severity of virus many persons may be advised by the medical practitioners to undergo homecare treatment that usually is not covered in existing health insurance products but this product duly bridges this gap. Home treatment is preferred choice of medical practitioners for asymptomatic and mildly symptomatic Covid positives who may get treatment while quarantined at home under due medical care. It also indemnifies consumables cost that is necessary as per treatment protocol of Covid patients and which fall in the exclusionary clause of the existing products. Its features, terms and conditions bring value to customers who want cover for Covid-19 treatments.

1. It is limited period, single risk policy exclusive to covid-19 treatment. The plan comes with a cap on sum insured up to Rs five lac. Treatment cost of illnesses other than Covid or accident is not covered in this policy.
2. It only indemnifies medical expenses incurred for hospitalization for the treatment of Covid on positive diagnosis in a government authorized diagnostic centre.
3. There is no cap for room rent. It relieves insured from proportionate deductions for associated medical costs if a room of higher cost than entitled is utilized for care as prevalent in most of the existing health insurance policies.
4. Oxygen, Ventilator charges, PPE kit, gloves, masks and similar other expenses are specifically covered without any cap if hospitalized for a minimum of 24 hours. PPE kits, gloves etc. are not covered in existing health insurance policies.
5. The fees charged for surgeons, consultants, anesthetists & specialists including the consultations through telemedicine are covered.
6. In addition to in-patient care expenses on diagnosis of COVID-19 the policy also covers cost of ‘Home care treatment’ for up to 14 days per incident, if prescribed by medical practitioner. The cost of Pulse oximeter, oxygen cylinder and Nebulizer is covered. Existing health insurance products do not cover such expenses outside hospital. In addition to it, diagnostic tests undergone at home or at diagnostic centre, medicines &the consultation charges of medical practitioner and nursing charges related to medical staff are also indemnified,
7. For the purpose of this policy any set up designated by the government as hospital for the treatment of Covid shall also be considered as hospital.
8. Any co-morbid condition, including pre-existing co-morbid condition, triggered due to Covid-19 is covered during the period of hospitalization along with the treatment for Covid. This provides great relief and access to health insurance to those who have these conditions and found it difficult to get coverage in these difficult times.
9. It excludes unproven treatment expenses as it lack significant medical documentation to support its effectiveness. However it stipulates that treatment authorized by the government for the treatment of Covid shall be covered. So the plasma therapy, if authorized by the government will be covered and indemnified.
10. There is no deductible under this policy.
11. Life long renewability, portability and migration is not available under this policy.
12. Installment facility is not available as it is single premium payment short term policy with policy tenure options for 31/2 months, 61/2 months and 91/2 months.
13. Pre-hospitalization expenses incurred 15 days before hospitalization and post hospitalization expenses post 30 days of discharge are covered.
14. Policy has optional daily cash cover on benefit basis up to 0.5% of sum insured once every 24 hours of hospitalization up to 15 days to meet incidental expenses.
15. Waiting period is only 15 days. Any Covid claim manifested prior to commencement date of policy or during the waiting period is not covered.
16. Policy ceases if the insured travels to any country placed under travel restrictions by the Government.

Pricing of Corona Kavach Policy:

The product design of the Corona Kavach is standard across insurers and no changes in prescribed design are permitted. Its pricing, however is left for discovery independently on Insurers on their actuarial assumptions and evaluation of risk. The pricing remains a challenge for insurers due to lack of data or availability of insufficient data related to cost of Covid treatment, related morbidity rates, mortality rates & patient profiles. The details of frequency and severity of corona virus treatments, the effect of including otherwise excluded cost in existing products, evolving treatment protocol and costs remain devolving, unknown and unsettled. Long term effect on health on corona survivors remains uncertain. Prognosis and treatment remains emerging. There remains high level of uncertainty related to frequency and severity of Covid outbreaks.

These constraints resulted in discovery premium costs for these standard products that vary significantly amongst insurers. It significantly but surprisingly attracts the attention that the risk appetite and actuarial assumptions& evaluations for standard risk can be so materially different for different insurers in their rate setting process. Whether these rates are representative of being competitive in their pricing or are on factoring of all associated risk on quality data sets can honestly be best answered only by the actuaries or else the insurers may check later how their liabilities are reported& combined costs emerge actually for these limited period products against technical premiums rated for these products. Some private insurers who have priced annual standard Arogya Sanjeevani health insurance product at very low price in April 20202 have priced limited Corona Kavach with very high price in July 2020. Some PSUs who priced the standard annual cover at very high price discovered very low price for this limited product in their actuarial modelling and evaluation of standard products. For a common man so much difference in same standard products suggests that these companies are at risk of under or over pricing the risk. Margins do vanish in a price-based competitive world.However, the prices are very attractive and affordable and will surely ease the financial pressure brought by this pandemic.

The pandemic will run its course at some point of time and the need which is felt today may not remain so relevant after a year or two. The trend of shoot up sale of this limited period product is out of fear and panic and it may last only for a short term. The revenue generated on these products may not remain available for renewals once the virus is contained and controlled.These Covid products do not seem to be a long term risk mitigation tool and these are no substitute for a regular health insurance covering all illnesses with lifelong renewable clause.

Corona Rakshak hands out a pre-agreed lump-sum to insured beneficiary upon diagnosis of Covid. The policy promises to pay up to 100% of the sum insured in a lump sum if the insured tests positive for Covid-19 and is hospitalized for a minimum of 72 hours. The policy is terminated once claim is made and paid. This is available up to sum insured of Rs 2.5 lacs. Benefit based policies hands over the sum insured to policyholders if they are diagnosed with the covered ailments or health contingencies under the policy. This is not available when home treatment is taken. However, the set up or make shift hospital designated by the government for treatment of Covid falls under the definition of hospital to trigger the benefit under the policy. The minimum entry age for both standard Covid products is 18 years and the maximum age is 65 years.

Health Insurance Risk Landscape is changing

The health insurance is in new era. It has occupied the top segment position in non-life sector. It is developing and undergoing significant changes at all levels be it government, regulator, insurers or service providers. Government’s flagship health insurance programme ‘Ayushman Bharat’ (PMJAY) has completed glorious two years and it has covered 13.13 crore households i.e. 53% of population base including converged State schemes.  Government is inching towards Universal Health Coverage through convergence and expansion of beneficiary base. Convergence of various schemes within State and other schemes such as ECHS, Indian Railways etc. may reduce the overlap and gain the higher efficiency by collective bargaining for lowering prices. National Health Authority has also issued expression of interest for its pilot product offering health insurance covering missing middle population. It is important to see how general and health insurers grab this opportunity. It is observed that 32 States and UTs out of 36 have implemented Ayushman Bharat. However the programme is being implemented in ‘Trust mode’. Out of 32 States and UT only seven have implemented the scheme in ‘Insurance mode’ and 4 have gone for ‘hybrid mode’. It shows that a great opportunity of growth has been lost by insurers as the schemes in insurance mode are also going back to trust mode.   This scheme has not only created awareness amongst population at large but it provides great learning for technology implementation, handling of fraud, abuse and wastage and deciding on package rates for treatment of various medical and surgical procedures.

Regulator has standardized exclusions and these shall be mandatorily applicable across all insurers in India w.e.f. 1^st of October 2020. After standardizing common definitions, critical illnesses, standard protocols for network providers, minimum standard clauses in health agreements, standard discharge summaries and standard hospitals bills by network Providers and after introducing standard retail health insurance product recently in April 2020 and Covid specific products in July 2020 these guidelines will rationalize and standardize the exclusions in health insurance contracts and will provide uniformity and transparency.

It is right time for forward looking insurers to work upon their Health Underwriting Policies with defined objective criteria. Products may not address the larger aspects of corporate philosophy on broad and wider underwriting philosophy &controls. These aspects are strategically covered in the underwriting policy and it determines the Segments and Pool Company is looking forward for health portfolio. This policy provides ease in underwriting at all levels. With new PED definition, moratorium period and lifelong renewal clause it should strategically deal effectively as to how disclosures on existing diseases by the proposer should be considered by an insurer. Some disclosures may be addressed by applying pre-defined loadings to provide coverage but in certain cases the disclosed risk may not enable the insurer to offer coverage and such risks need to be excluded permanently. If a risk is accepted it should be based on consent of proposer with disclosure of applicable loadings. The Regulation prescribes such policy to be approved by the Board of the Insurer and if no such policy exist the officials of company won’t be able to have discretions for such decisions.

The pandemic is regularly challenging the engagement rules in health insurance. Standardization of health insurance contracts will set the new course of operational efficiencies. Consumers will gain more trust and faith with more standardization. This sector has already occupied the top segment position in terms of premium. Pace of recovery in late 2020 or in 2021 will depend on speed of containment of the pandemic and the effective business continuity plans of the insurers. The landscape of health insurance is changing at fast pace and Insurers shall build operational resilience to emerge as relevant insurers in this fast evolving era. There is no prescriptive solution to drive growth or profitability in the segment but clear strategic vision as to where you want to go and who will carry you there may determine the future of players in this sector. Health is going to remain unchallenged business growth driver for health and general insurers and it is time for them to reposition their resources, engage in collaborations and come out with right products on right price to remain self-sufficient and relevant in changed landscape.