Pre regulation market
The Indian Parliament passed The General Insurance Business (Nationalization) Act in the year 1972 and consequently, General Insurance business was nationalized with effect from 1 January 1973. 107 insurers were amalgamated and grouped into four companies, namely National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd and the United India Insurance Company Ltd. In the year 1972 , the General Insurance Corporation of India was incorporated and it commenced business on 1 January 1973.
Important date marks in health insurance sector
1912 – Health Insurance introduced when the first insurance act was passed.
1947 – The Bhore Committee Report make recommendations for the improvement of health care services India.
1948 – The central government introduced the employees State Insurance Scheme (ESIS) for blue collar workers employed in the private sector.
1954 – The Central Government Health Scheme (CGHS) for central government employees and for their families.
1986 – Mediclaim was Introduced. Started by government insurance companies in 1986.
1999 – Marked the beginning of a new era for health insurance in the Indian context. The setting up of IRDA led to opening of the insurance sector for private and foreign participation.
Mediclaim – The scheme was launched in the year 1986. At the time of introduction of this scheme the minimum and maximum age limits were 5 and 70 years respectively. Under this scheme a person between 3 months to 80 years of age can purchase Mediclaim Policy. The total insurance sum can be up to Rs. 5 lakhs against accidental and sickness hospitalizations during the policy period. Launched in 1986, the health insurance industry has grown significantly mainly due to liberalization of economy and general awareness. There are standalone health insurers along with government sponsored health insurance providers.
In 2001-02, health insurance premium from all companies amounted to only Rs 675 crore.The market share before regulation of the market was totally shared by four PSU’s and because of lack of competition and lack of variety of products, the health insurance with basic features were only offered to the people. The era was marked with:
– Poor product design
– Poor penetration
– Lack of Technological feature
Post regulation market
IRDA (Insurance Regulatory & Development Authority): IRDA was constituted as an autonomous body in the year 1999 to regulate and develop the insurance industry. The main purpose of setting up IRDA is to include promotion of competition and to enhance customer satisfaction by providing increased consumer choice and lower premiums, while ensuring the financial security of the insurance market.
The IRDA opened up the market in August 2000. Foreign companies were allowed ownership of up to 26%. The Authority has the power to frame regulations and has from 2000 onwards framed various regulations ranging from registration of companies for carrying on insurance business to protection of policyholders’ interests.
- The duties, powers and functions of IRDA are laid down in section 14 of IRDA Act, 1999 as: To regulate, promote and ensure orderly growth of the insurance business and re-insurance business.
- IRDA issue to the applicants a certificate of registration and also provides services like renewal, modification, withdrawal, suspension or cancellation of such registration.
- It provides protection of the interests of the policy holders in matters concerning assigning of policy, , settlement of insurance claim, nomination by policy holders, insurable interest ,surrender value of policy and other terms and conditions of contracts of insurance.
- It specifies requisite qualifications, practical training for intermediary or insurance intermediaries and agents, and also specifies the code of conduct for surveyors and loss assessors.
- IRDA controls and regulates the rates, advantages, terms and conditions that may be offered by insurers in respect of general insurance business not so controlled and regulated by the Tariff Advisory Committee under section 64U of the Insurance Act, 1938 (4 of 1938)
- It regulates the investment of funds by insurance companies, maintenance of margin of solvency, adjudication of disputes between insurers and intermediaries or insurance intermediaries
- It specifies the percentage of premium income of the insurer to finance schemes for promoting and regulating professional organizations. It also specifies the percentage of life insurance business and general insurance business that is to be undertaken by the insurer in the rural or social sector.
In its pursuit, to regulate the market, IRDA has come out with many regulations at different junctures. The brief details of such regulations are as follows –
IRDA Regulations –
- IRDA Third Party Administrators- Health Services Regulations, 2002
As per this IRDA regulation, Insurer shall provide the health services required to the insured to process the claims either directly or by utilizing the services of the TPA (Third Party Administrators). The TPA must have a working capital of less than Rs.1 crore. At least one of the directors of the TPA shall be a qualified medical doctor registered with the MCI. The maximum aggregate holdings of equity shares by a foreign company is twenty-six percent of the paid up equity capital of a third party administrator. License is usually granted for a period of 3 years to a TPA. TPA ties-up with the hospitals and other service providers and provides the hospitalization services on cashless basis.
- IRDA Protection of policyholders interests, 2002
IRDA has the responsibility of protecting the interest of insurance policyholders. IRDA has regulated Protection of Policyholders Interest Regulations 2001 which provides for: policy proposal documents in easily understandable language; claims procedure in both life and non-life, speedy settlement of claims setting up of grievance redressal machinery; and policyholders’ servicing. Insurer has to pay interest to the insurers in case of the delay in settlement of claims.
It has notified the insurers regarding –
- Maintaining solvency margins
- Clear disclosure of benefits, terms and conditions
- IRDA Advertisements and Disclosures Regulations, 2002
The advertisements issued by the insurers should not mislead the insuring public. The Authority has brought out the IRDA (Insurance Advertisement and Disclosure) Regulations in 2000 to ensure that asymmetry is addressed. It has been IRDA’s constant endeavor to permit only correct, easily understood depiction of the product features.
Irda Guidelines –
IRDA has given many guidelines for the insurer to follow and for the insured to know. The various guidelines pertaining to health insurance sector are as follows –
- Free-Look Period –
IRDA has built into its regulations a consumer-friendly provision that allows one to return the policy if they don’t want to buy it. There are some conditions though.
- This applies only to Life insurance policies and
- To Health insurance policy that are for a term of at least 3 years
- One can exercise this option within 15 days of receiving the policy document with a communication to the company in writing
- The premium refund will be adjusted for proportionate risk premium for the period on cover expenses incurred by the insurer on medical examination and stamp duty charges.
- Renewability of Health Insurance –
The common concern among consumers, especially senior citizens, about insurance companies turning down the renewal of health insurance policies has been done away by the IRDA by stipulating that a health insurance policy should always be renewed except if there has been
- Fraud or dishonesty
- Moral hazard (Taking an insurance policy to make a false claim)
- Portability of Health Insurance –
When one changes the health insurance policy from one insurance company to another, one used to lose benefits like the waiting period for covering “Pre-existing Diseases”. Now one can port his policy from one insurer to another without losing such benefits, provided the switch is not from one plan to another plan of the same insurer.
- Insured gets the credit relating to waiting period for pre-existing conditions from the new insurer that he has gained with the old insurer.
- The new insurer has to insure him at least up to the sum insured under the old policy
- The two insurers should complete the porting procedures as per the timelines prescribed in the IRDA (Protection of Policyholders’ Interests) Regulations and guidelines.
- Porting is allowed only at the juncture of renewal. That is, the new insurance period will be with the new insurance company.
- Leaving the waiting period credit, the new insurance company is free to decide about other terms of the new policy including the premium.
- At least 45 days before the renewal is due one has to
- Write to his old insurance company requesting a shift to another insurer.
- Specify company to which he wants to shift the policy to.
- Renew the policy without a break ( 30 day grace period, if porting is under process)
- File and Use Procedure for health insurance products
Insurers have to follow the File and Use guidelines for filing the new health insurance products and the information has to be furnished in the formats stipulated by the Authority from time to time. Similarly for any revision or modification of the existing health insurance products, the insurer has to file as per the formats stipulated by the Authority with the reasons for the proposed modification.
Other Guidelines –
- Dependent Child –
The amended guidelines also have a few major changes. The definition of ‘dependent child’ has been deleted from the list of standardized terminologies. So, insurers are now free to interpret this as per their way.
- Hospitals –
Under the new norms, an establishment registered with the local authorities does not have any minimum in-patient bed requirement. The requirement for unregistered hospitals is of having at least 10 in-patient beds in towns (with a population less than 10 lakh) and 15 inpatient beds in other places.
- Medical Practitioner –
The definition of ‘medical practitioners’ has been expanded to include people registered under the Central Council of Indian Medicine or the Central Council of Homoeopathy or any similar council set up by the government.
- Maternity Expense –
Relaxations have been made for maternity expenses or treatment. Maternity expenses now mean any medical treatment or expense traceable to childbirth, including caesarean sections during hospitalization and lawful abortions during the policy period.
- Entry age limits –
Based on the latest regulations in health insurance sector, it has become mandatory that the maximum entry age for a standard health insurance policy offered by General (or non-life) Insurance Companies across India should be at least 65 years.
- New born baby –
The insurance regulator has also amended the definition of ‘newborn baby’ to include adopted children. Under the new definition, newborn baby would mean a baby born during the policy period and is aged between one day and 90 days, both days inclusive.
- Deductibles –
Deductible, a cost-sharing requirement under a health insurance policy, has been amended to provide that the insurer will not be liable for a specified amount in case of indemnity policies and for a specified number of days/hours in case of hospital cash policies. Adding to this, it said registered homeopathic practitioners will also be classified as medical practitioners.
- Health Plus Life Combi Products –
The “Combi Products may be promoted by all Life Insurance and Non-Life Insurance Companies. It shall be the combination of Pure Term Life Insurance cover offered by life insurance companies and Health Insurance cover offered by non- life insurance companies. Health Insurance for the purpose of this product class means effecting of contracts which exclusively provide sickness benefits or medical, surgical or hospital expense benefits, whether in-patient or out-patient, on an indemnity or reimbursement basis. Both the independent products shall be integrated as a single product and filed with a common brand name.
IRDA facilitation is a web-based facility to get and maintain data about all health insurance policies issued by insurance companies to individuals. This helps for the access of details by the new company to which a policyholder wishes to port his policy.
POLICY HOLDER SERVICING TURNAROUND TIMES AS PRESCRIBED BY IRDA
GENERAL: MAXIMUM TURN AROUND TIME
- Processing of Proposal and Communication of decisions including requirements / issue of Policy / Cancellations
- Obtaining copy of the proposal
- Post Policy issue service requests concerning mistakes/refund of proposal deposit and also Non-claim related service requests
- Survey report submission
- Insurer seeking addendum report
- Settlement / rejection of Claim after receiving first/addendum survey report
- Acknowledge a grievance
- Resolve a grievance
- Customer Grievance Mechanism –
With the initiative of IRDA, insurers have placed customer grievance cells in their working system, thus ensuring that customers are not maltreated and not ill served at any time during the running of the policy. If the insurance company does not resolve the complaint to customer satisfaction, one can escalate the complaint to IRDA. If the complaint is suitable for taking to the Insurance Ombudsman, IRDA will help resolve it by taking it up with the insurance company. For disputes where enquiry or adjudication are required one is advised to approach the Consumer Forum or Courts. It is because of solid grievance mechanism adopted by IRDA that complaints of customers are taken very seriously by the insurers. The Table below shows the movement of complaints in non- life segment in 2013-14 in various industry. The low pendency of complaints shows the efficiency and promptness with which the complaints were resolved.
- Health Insurance for deprived class –
UHIS and RSBY schemes came into effect after IRDA started regulating the market. IRDA allowed the entry of private players in the health sector but it was necessary to cover economically challenged people also. So the Government took the initiative to cover below poverty line people with these schemes.
- UHIS –
The Universal Health Insurance Scheme (UHIS) was launched by the government in the year 2003. Standard Mediclaim product with an annual cover of Rs 30000 for a family. Scheme marketed by the public sector insurance companies and was targeted at the BPL Population. Now superseded by RSBY
- RSBY –
Is a project under the Ministry of Labour and Employment. Started in April, 2008 and has been implemented in 25 states. Total sum insured of Rs 30000 per BPL family on a family floater basis. Every ‘below poverty line’ family holding a yellow ration card pays Rs 30 registration fee to get a biometric-enabled smart card containing their fingerprints and photographs.
It covers preexisting diseases from Day 1. It gives coverage of health services related to OPD and hospitalization. It provides cashless coverage in public as well as private hospitals. There is a provision of Smart Card and also the provision for transport allowance (actual with limit of Rs 100 per visit ) but subject to an annual ceiling of Rs 1000.
- Micro insurance –
Micro insurance, is widely accepted as one of the wing of financial inclusion package that was pitched to empower economically weaker sections of society by providing banking and credit services thereby focusing on bridging the rural credit gap. Micro insurance regulations issued by IRDA have provided a boost in propagating micro insurance as a conceptual issue. The micro insurance regulations have been made effective from 2005. These regulations are in addition to the mandatory rural and social sector business to be done by all insurers on an annual basis. There were 10482 micro insurance agents operating in the micro insurance sector as at the end of 2010-11.
- Way Forward –
There are many challenges ahead which are bothering this sector. These challenges have the ability to transform the profitable sector into loss making one. The real concern is to find out the solution to tackle these challenges so as to make health insurance sector more promising.
- Rampant malpractices:
Rampant malpractices are causing loss to public sector insurance companies and there is a need for restructuring of their activities to bring about change in the sector. Claims ratio is as high as 150 per cent and malpractices are too much in health sector. The structural inefficiencies are hampering development of the sector.
- Frauds –
According to a recent survey, it is estimated that the number of false claims in the Industry is approximately 15% of total claims. The report suggests that the Healthcare Industry in India is losing approximately Rs.600-Rs.800 crores incurred on fraudulent claims annually. Health Insurance is bleeding sector with very high claims ratio.
Mainly three kinds of frauds are prevalent in the market –
1. Policyholder Fraud and /or Claims Fraud – Fraud against the insurer in the purchase and/or execution of an insurance product, including fraud at the time of making a claim.
2. Intermediary Fraud – Fraud perpetuated by an intermediary against the insurer and/or policyholders.
3. Internal Fraud – Fraud / miss-appropriation against the insurer by a staff member.
It is a matter of concern that ‘insurance fraud’ is not defined under the Indian Insurance Act. The Indian Penal Code (IPC) & Indian Contract Act, also do not offer specific laws to control Health Insurance Frauds. Sections of the IPC which deal with issues of fraudulent act, forgery, cheating etc. do not specifically target at insurance fraud and are inadequate for purpose of acting as an effective deterrent.
In absence of specific laws and harsh punishments, prosecution will rarely be successful and if successful, the penalty inadequate to deter others. Frauds by Healthcare Provider or its employees make the situation difficult for underwriters. No Regulatory vigil on such providers makes the task more difficult for the health insurers as they have little control over the medical care providers.
- Penetration & awareness
IRDA has a challenge in increasing the awareness of insurance in the country. Although Penetration of Insurance in India is significant when compared with South Asian Countries but in comparison to Singapore, South Korea and Japan it is very low. However, in the life insurance sector, India’s penetration at 4.6 per cent is above world average of 4.0 per cent and is comparable with some developed countries.
In the non-life insurance sector, India has a penetration of 0.6 per cent, while that of the world, it is 3.0 per cent. (Source: Swiss Re as given in IRDA,2009-10). There are many factors that are responsible for the low levels of insurance penetration in the country. These include untapped rural markets, low consumer preference, and constrained distribution channels.
Health insurance penetration is also lower. In India about 15% of the population is covered by some form of insurance but needless to say that low income group because of income constraint and lack of awareness are mostly out of the health insurance bracket.
- Social Aspect
In the market of competition, companies have forgotten that there are other class of people who need insurance but due to economical backwardness, they are unable to pay the premium.
Premium for health insurance varies a lot between public sector and private sector. The premium of private sector is very high compared to that of public sector. The premium in public sector is based on the sum insured opted while private sector demands premium based on the age. Moreover private sector has no mood to tap the rural sector as the people don’t have premium paying capacity there.
In this scenario, it is pertinent for IRDA to come into the picture and make private sector to include social aspects also in the run to make profit. There is a need to have special policies with reduced premium for economically back class and for senior citizens. Since their earning capacity is limited, they are not able to get into health insurance bracket. Once the penetration of health insurers improves, then only the penetration of health insurance can improve.
The setting up of IRDA has increased the growth Performance of the insurance industry in India, which supervise and controlled the entire insurance industry.
The growth in insurance penetration and density, increase in the number of insurers both in life and non-life, increase in the number of policies issued and increase in the speed of claims settlement and in many more aspects the IRDA is playing a prominent role in the Indian insurance sector. But as discussed, there is a great need for more involvement, more research in this field so as to improve the awareness level and penetration level of insurance.