Performance Audit by CAG for PSU insurers

Insurance industry in India registered substantial growth after enactment of Insurance Regulatory Development Authority Act in 1999. This industry today functions in a highly competitive environment. The health services insurance is provided by 15 private insurance companies and four public sector undertakings viz., National Insurance Company Limited, The New India Assurance Company Limited, Oriental Insurance Company Limited and United India Insurance Company Limited.

A performance audit of health insurance services by PSUs was conducted for the three years from 2006-07 to 2008-09.

The performance audit revealed that:

• Proportion of premium from health insurance doubled from less than 10 per cent in 2004-05 to around 20 per cent in 2008-09. However, market share declined from 64 per cent in 2006-07 to 57 per cent in 2008-09.

• Four PSU insurers suffered a loss of Rs. 417 crore from individual portfolio, whereas group policies had contributed a loss of Rs. 622.49 crore during the three year period from 2006-07 to 2008-09. Despite these huge losses, it was seen in 115 out of 159 cases reviewed in audit that group policies were renewed without appropriate loading in violation of the rules for renewal of such policies. Further, the group policies with high incurred claim ratio included a corporate house that
is itself in the business of providing health insurance.

• The PSU insurers did not attempt to reduce their losses by reducing the cost of medical services through standardization of rates and codes for various clinical procedures despite introduction of TPA Regulations nine years ago.

• The cashless settlement has been achieved to the extent of 55 per cent only and cases of delay in issue of ID cards, and claim settlement beyond 7 working days
were noticed in respect of 72 per cent of the cases. There were wide variations in the amount of claims for similar clinical procedures. The PSU insurers failed to
monitor the performance parameters resulting in deficiency in services of the third party administrators to the insured with consequent impact on customer satisfaction.

Summary of recommendations

The PSU insurers may:
(i) Create a data bank on morbidity, claims, inflationary trend and age/gender/disease wise claim analysis to initiate a system to ensure charging of prescribed premium
(ii) Increase the volume of business to achieve break-even in the health portfolio.
(iii) Take initiative to standardise the terms and conditions of mediclaim policies to achieve the goal of portability.
(iv) Review and introduce a system of payment of service fee with suitable incentive/disincentive differentiating between group and individual policies.
(v) Develop a mechanism to evaluate the performance of TPAs on issue of identity cards, settlement of claims on cashless treatment/reimbursement;
(vi) Ensure that the policy conditions are embedded in the system with provision for audit and complied with by the TPAs while settling the claims;
(vii) Strive to achieve standardisation of the hospital charges and clinical procedures through negotiation with the service providers to contain cost.
(viii) Prescribe quantum of checks to be applied by Internal Audit to reduce the risk in the context of outsourcing of settlement of claims.

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