Project Report Submitted on

Submitted by

Swati Bhosale

Roll No: 69

Master in Finance Management

(2009-2012)

University of Mumbai

MET Institute of Management

Mumbai – 400050

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SCOPE OF HEALTH INSURANCE IN INDIA

MET’S INSTITUTE OF MANAGEMENT

PART-TIME MASTER’S DEGREE IN MANAGEMENT

MFM– THIRD YEAR SEMESTER FIRST [2011-2012]

CERTIFICATE FROM GUIDE

This is to certify that the project entitled “Scope of Health Insurance in India” has been

successfully completed by Mrs. Swati Bhosale, under my guidance during the Third year i.e.

2011-2012 in partial fulfilment of his/her course, Master Degree in Finance management under

the University of Mumbai through the MET’s Institute of Management, General Arun Kumar

Vaidya Chowk, Bandra Reclamation, Bandra (W.), Mumbai – 400 050.

Name of Project Guide: Prof. Sandeep Chopde

Address of Guide: __________________________________

__________________________________________________

__________________________________________________

Tel. No.: __________________________________________

Date: _______________________

Signature of Project Guide: ___________________________

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Acknowledgements

My sincere thanks to Prof. Sandeep Chopde, for the guidance and support in helping me

do this project as a part of Masters in Finance management (2009 – 2012).

I would also like to thank The MET’s Institute of Management, Mumbai for giving us this

opportunity of learning and providing us with the environment of learning, self

development and growth for a better future.

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Index

Sr.n

o. Topics

1 Executive Summary

2 Introduction

3 History

4 Why Health Insurance

5 Opening up of the Insurance Sector

6 Government regulation pre and post Nationalization

7 Health Sector in India

8 State Companies v/s. Private companies

9 The changing Attitude

10

Current Policies available in market, the major players

& important schemes.

11 GIPSA

12 Third Party Administrators (TPAS)

13 Employee State Insurance (ESI) Scheme

14 Health insurance for poor by NGOs

15

SEWA's Health Insurance and Social Security Schemes

for the Poor

16 The Current Scenario

17 Forecasting and Statistical Study

18 Conclusion

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Executive summary

The game is old but the rules are new, and in the process of changing further. From

Being ensconced in a monopoly run from the nationalisation days beginning 1956, the insurance

industry has indeed woken up — to a de-regulated environment, with the industry space now

being populated by several private players in partnerships with multinational insurance giants.

The opening of the insurance sector in India has been a landmark event in India’s economic

history. Today insurance offers complete solutions to create wealth, protect health and insure life.

Added to this, the profile of the Indian customer is changing. Today, while boundaries between

various financial products are getting blurred, people are increasingly looking not just at products

but also at integrated financial solutions that can offer them stability of returns along with total

protection. Insurance products will need to be customised to satisfy these myriad needs of the

customers and this where the private players come in bringing with them hopes of wider options

and efficient service. The market is already seeing a rise in number of players and in making

insurance products, new companies will have to adopt systems which factor in all potential risks.

In such a scenario, it’ll be difficult to say what will be the differentiator across the different

players — products, pricing or service?

This study looks at the scope of the insurance sector and its implications with specific reference to

the health insurance sector, the current scenario, future positions, bottlenecks that could be faced,

future growth potentials and to understand the opportunities, challenges and its concerns.

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INTRODUCTION

Health care has always been a problem area for India, a nation with a large population and a larger

percentage of this population living below the poverty line. In such a situation insurance becomes

an important issue in the country. But surprisingly, for a country with the 5th largest economy,

insurance in India has not been a sector that has taken off, considering its immense potential.

Over the last 50 years India has achieved a lot in terms of health improvement. But still India is

way behind many fast developing countries such as China, Vietnam and Sri Lanka in health

indicators. In case of government funded health care system, the quality and access of services has

always remained major concern. A very rapidly growing private health market has developed in

India. This private sector bridges most of the gaps between what government offers and what

people need. However, with proliferation of various health care technologies and general price

rise, the cost of care has also become very expensive and unaffordable to large segment of

population. The government and people have started exploring various health financing options to

manage problems arising out of growing set of complexities of private sector growth, increasing

cost of care and changing epidemiological pattern of diseases.

The new economic policy and liberalization process followed by the Government of India since

1991 paved the way for privatization of insurance sector in the country. Health insurance, which

remained highly underdeveloped and a less significant segment of the product portfolios of the

nationalized insurance companies in India, is now poised for a fundamental change in its approach

and management. The Insurance Regulatory and Development Authority (IRDA) Bill, passed in

the Indian Parliament, was important beginning of changes having significant implications for the

health sector.

The privatization of insurance and constitution IRDA envisage improving the performance of the

state insurance sector in the country by increasing benefits from competition in terms of lowered

costs and increased level of consumer satisfaction. The recent policy changes will have been far

reaching and would have major implications for the growth and development of the health sector.

There are several contentious issues pertaining to development in this sector and these need

critical examination. These also highlight the critical need for policy formulation and assessment.

Unless privatization and development of health insurance is managed well it may have negative

impact of health care especially to a large segment of population in the country. If it is well

managed then it can improve access to care and health status in the country very rapidly.

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Health insurance as it is different from other segments of insurance business is more complex

because of serious conflicts arising out of adverse selection, moral hazard, and information gap

problems. For example, experiences from other countries suggest that the entry of private firms

into the health insurance sector, if not properly regulated, does have adverse consequences for the

costs of care, equity, consumer satisfaction, fraud and ethical standards. The IRDA has a

significant role in the regulation of this sector and responsibility to minimise the unintended

consequences of this change.

Health sector policy formulation, assessment and implementation are an extremely complex task

especially in a changing epidemiological, institutional, technological, and political scenario.

Further, given the institutional complexity of our health sector programmes and the pluralistic

character of health care providers, health sector reform strategies in the context of health

insurance that have evolved elsewhere may have very little suitability to our country situation.

Proper understanding of the Indian health situation and application of the principles of insurance

keeping in view the social realities and national objective are important.

This study presents scope of health insurance in India - the opportunities it provides, the

challenges it faces and the concerns it raises. The implications of privatization of insurance on

health sector from various perspectives and how it will shape the character of our health care

system is also attempted.

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HISTORY

In India, insurance has a deep-rooted history. It finds mention in the writings of Manu

(Manusmrithi), Yagnavalkya (Dharmasastra) and Kautilya (Arthasastra). The writings talk in

terms of pooling of resources that could be re-distributed in times of calamities such as fire,

floods, epidemics and famine. This was probably a pre-cursor to modern day insurance. Ancient

Indian history has preserved the earliest traces of insurance in the form of marine trade loans and

carriers’ contracts. Insurance in India has evolved over time heavily drawing from other countries,

England in particular.

1818 saw the advent of life insurance business in India with the establishment of the Oriental Life

Insurance Company in Calcutta. This Company however failed in 1834. In 1829, the Madras

Equitable had begun transacting life insurance business in the Madras Presidency. 1870 saw the

enactment of the British Insurance Act and in the last three decades of the nineteenth century, the

Bombay Mutual (1871), Oriental (1874) and Empire of India (1897) were started in the Bombay

Residency. This era, however, was dominated by foreign insurance offices which did good

business in India, namely Albert Life Assurance, Royal Insurance, Liverpool and London Globe

Insurance and the Indian offices were up for hard competition from the foreign companies.

In 1914, the Government of India started publishing returns of Insurance Companies in India. The

Indian Life Assurance Companies Act, 1912 was the first statutory measure to regulate life

business. In 1928, the Indian Insurance Companies Act was enacted to enable the Government to

collect statistical information about both life and non-life business transacted in India by Indian

and foreign insurers including provident insurance societies. In 1938, with a view to protecting

the interest of the Insurance public, the earlier legislation was consolidated and amended by the

Insurance Act, 1938 with comprehensive provisions for effective control over the activities of

insurers.

The Insurance Amendment Act of 1950 abolished Principal Agencies. However, there were a

large number of insurance companies and the level of competition was high. There were also

allegations of unfair trade practices. The Government of India, therefore, decided to nationalize

insurance business.

An Ordinance was issued on 19th January, 1956 nationalising the Life Insurance sector and Life

Insurance Corporation came into existence in the same year. The LIC absorbed 154 Indian, 16

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non-Indian insurers as also 75 provident societies—245 Indian and foreign insurers in all. The

LIC had monopoly till the late 90s when the Insurance sector was reopened to the private sector.

The history of general insurance dates back to the Industrial Revolution in the west and the

consequent growth of sea-faring trade and commerce in the 17th century. It came to India as a

legacy of British occupation. General Insurance in India has its roots in the establishment of

Triton Insurance Company Ltd., in the year 1850 in Calcutta by the British. In 1907, the Indian

Mercantile Insurance Ltd was set up. This was the first company to transact all classes of general

insurance business.

1957 saw the formation of the General Insurance Council, a wing of the Insurance Association of

India. The General Insurance Council framed a code of conduct for ensuring fair conduct and

sound business practices.

In 1968, the Insurance Act was amended to regulate investments and set minimum solvency

margins. The Tariff Advisory Committee was also set up then.

In 1972 with the passing of the General Insurance Business (Nationalisation) Act, general

insurance business was nationalized with effect from 1st 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. The General Insurance Corporation of India was incorporated as a

company in 1971 and it commence business on January 1sst 1973.

This millennium has seen insurance come a full circle in a journey extending to nearly 200 years.

The process of re-opening of the sector had begun in the early 1990s and the last decade and more

has seen it been opened up substantially. In 1993, the Government set up a committee under the

chairmanship of RN Malhotra, former Governor of RBI, to propose recommendations for reforms

in the insurance sector. The objective was to complement the reforms initiated in the financial

sector. The committee submitted its report in 1994 wherein, among other things, it recommended

that the private sector be permitted to enter the insurance industry. They stated that foreign

companies are allowed to enter by floating Indian companies, preferably a joint venture with

Indian partners.

Following the recommendations of the Malhotra Committee report, in 1999, the Insurance

Regulatory and Development Authority (IRDA) was constituted as an autonomous body to

regulate and develop the insurance industry. The IRDA was incorporated as a statutory body in

April, 2000. The key objectives of the IRDA include promotion of competition so as to enhance

9

customer satisfaction through increased consumer choice and lower premiums, while ensuring the

financial security of the insurance market.

The IRDA opened up the market in August 2000 with the invitation for application for

registrations. Foreign companies were allowed ownership of up to 26%. The Authority has the

power to frame regulations under Section 114A of the Insurance Act, 1938 and has from 2000

onwards framed various regulations ranging from registration of companies for carrying on

insurance business to protection of policyholders’ interests.

In December, 2000, the subsidiaries of the General Insurance Corporation of India were

restructured as independent companies and at the same time GIC was converted into a national re-

insurer. Parliament passed a bill de-linking the four subsidiaries from GIC in July, 2002.

Today there are 24 general insurance companies including the ECGC and Agriculture Insurance

Corporation of India and 23 life insurance companies operating in the country.

The insurance sector is a colossal one and is growing at a speedy rate of 15-20%. Together with

banking services, insurance services add about 7% to the country’s GDP. A well-developed and

evolved insurance sector is a boon for economic development as it provides long- term funds for

infrastructure development at the same time strengthening the risk taking ability of the country.

Year Important Happenings

1912 Insurance Act passed

1938 Insurance Act, 1938

1956 Life Insurance industry nationalized

1972 General Insurance industry nationalized

1999 IRDA bill passed in Parliament to allow foreign players entry

2001 Insurance Amendment Bill 2001 passed by Parliament

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WHY HEALTH INSURANCE

Recognition as an industry:

In the mid 80's, the healthcare sector was recognized as an industry. Hence it became possible to

get long term funding from the Financial Institutions. The Government also reduced the import

duty on medical equipment’s and technology.

Socio Economic changes:

The rise of literacy rate, higher levels of income and increasing awareness through deep

penetration of media channels, contributed to greater attention being paid to health. With the rise

in the system of nuclear families, it became necessary for regular health check-ups and increase in

health expenses.

Brand Development:

Many family-run business houses have set-up charity hospitals. By lending their name to the

hospital, they develop a good image in the market, which further improves the brand image of

products from their other businesses.

Extension to related business:

Some pharmaceutical companies like Wockhardt and Max India, have ventured into this sector as

it is a direct extension to their line of business.

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OPENING UP OF THE INSURANCE SECTOR

When the insurance industry was nationalized, it was considered a landmark and a

Milestone on the way to the socialistic pattern of society that India had chosen after

Independence. However, with the passage of the Insurance Regulatory Development Act (IRDA)

in 1999, things were quickly changing. The main features of the Act are:

It requires the Indian promoter to invest either wholly in an insurance venture or team up

with a foreign insurer, with a cap of 26% of equity for the foreign partner.

The Indian promoter is permitted to divest only after 10 years to the Indian public, through a

public offering of shares, at which time the equity structure will provide for equal participation

between the Indian and foreign partner with a share of 26% each in the share capital.

Cooperative societies are being recognized to carry on business.

The training requirements are being modified as the existing norms are restrictive and putting

constraints on the growth of corporate agency business in the country.

A portion of the premium received from a customer, can be paid as remuneration to an

insurance intermediary, which has been defined to include insurance brokers and consultants. This

doesn’t mean that public players are totally out of the market; in fact they continue to hold strong

market share positions. Multinational insurers are keenly interested in emerging insurance

because their home markets are saturated while emerging countries have low insurance

penetrations and high growth rates.

Section 14 of IRDA Act, 1999 lays down the duties, powers and functions of IRDA.

Subject to the provisions of this Act and any other law for the time being in force, the

Authority shall have the duty to regulate, promote and ensure orderly growth of the insurance

business and re-insurance business.

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Without prejudice to the generality of the provisions contained in sub-section (1), the powers

and functions of the Authority shall include, -

issue to the applicant a certificate of registration, renew, modify, withdraw, suspend or cancel

such registration;

protection of the interests of the policy holders in matters concerning assigning of policy,

nomination by policy holders, insurable interest, settlement of insurance claim, surrender value of

policy and other terms and conditions of contracts of insurance;

specifying requisite qualifications, code of conduct and practical training for intermediary or

insurance intermediaries and agents

specifying the code of conduct for surveyors and loss assessors;

promoting efficiency in the conduct of insurance business;

promoting and regulating professional organisations connected with the insurance and re-

insurance business;

levying fees and other charges for carrying out the purposes of this Act;

calling for information from, undertaking inspection of, conducting enquiries and

investigations including audit of the insurers, intermediaries, insurance intermediaries and other

organisations connected with the insurance business;

control and regulation of 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);

specifying the form and manner in which books of account shall be maintained and

statement of accounts shall be rendered by insurers and other insurance intermediaries;

regulating investment of funds by insurance companies;

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specifying the percentage of premium income of the insurer to finance schemes for

promoting and regulating professional organisations referred to in clause (f);

adjudication of disputes between insurers and intermediaries or insurance intermediaries;

supervising the functioning of the Tariff Advisory Committee;

Specifying the percentage of life insurance business and general insurance business to be

undertaken by the insurer in the rural or social sector.

The IRDA -Insurance Regulatory Development Authority has recognized the following

companies and are major health insurance companies in India are

National Insurance Company

New India assurance

United India insurance

ICICI Lombard

Tata AIG

Royal sundaram

Star allied health insurance

Cholamandalam DBS

Bajaj alliance Apollo

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GOVERNMENT REGULATIONS BEFORE & AFTER

NATIONALISATION

The insurance industry in India was nationalized in 1956. Before there were only rules relating to

specification of minimum equity capital requirements for life insurance companies, stricter

control over their investments, submission of periodical returns, appointment of administrators for

mismanaged companies and ceilings on expenses on management and agency commissions.

Nationalization brought in a more structured form to the industry. The insurance

businesses of the various domestic and foreign companies were first brought under the central

government and then nationalized under the Life Insurance Corporation Act 1956.Also there is

the Insurance Division that keeps a close watch on the working of Vigilance machinery in LIC,

GIC and its subsidiaries. But there were still concerns of:

(a) Relatively low spread of insurance in the country:

India is one of the most underinsured countries in the world. This can be explained partly by the

fact that India is a low income developing economy whose domestic saving potential in long-term

assets is not as high as that of developed economies to spread the habit of insurance, we need

many more companies selling it.

(b) The efficient functioning of the Public Sector insurance companies.

The general perception about public sector companies was that the public sector companies were

inefficient places where nothing actually got done. With a history like that nobody would want to

take a policy from a public sector company.

(c) The untapped potential for mobilizing long-term contractual savings funds for

infrastructure.

The Indian population represents a huge untapped potential for insurance companies. Potential for

growth is huge in the Indian insurance industry.

Consider the following statistics: the middle-income segment of the Indian population, which is a

goldmine for prospective insurance sellers, is 312 million strong. Against this, LIC services less

15

than 100 million policies. Only 65 million Indians have been introduced to insurance. All these

figures work out to an average of 1.5 policies per person, which is a penetration of just 6%.

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HEALTH SECTOR IN INDIA

Till now, in India, the health sector i.e. the primary health care system has been managed mainly

by the shallow structure of government health-care facilities and other public health care systems

in a traditional model of health funding and provision. But, it is unable to justify the demand for

health security by over 200 million of the health insurable population in India, mainly due to

service costs being out of reach of many people, absence of good and effective number of

physicians, low rate of education programs, less number of hospitals, poor medical equipment and

over all, the poor budget of government towards the health program. Even Social insurance

schemes available in India, such as the Employee State insurance Scheme (ESIS) and Central

Government Health Scheme (CGHS) have restricted coverage to a very small segment of the

population, around 3 per cent.

India spends about 6% - 7% of GDP on health expenditure. Private health care expenditure is 75%

or 4.25% of GDP and most of the rest (1.75%) is government funding. At present, the insurance

coverage is negligible. Most of the public funding is for preventive, promotive and primary care

programmes while private expenditure is largely for curative care. Over the period the private

health care expenditure has grown at the rate of 12.84% per annum and for each one per cent

increase in per capital income the private health care expenditure has increased by 1.47%.

Number of private doctors and private clinical facilities are also expanding exponentially. Indian

health financing scene raises number of challenges, which are:

• increasing health care costs,

• High financial burden on poor eroding their incomes,

• Increasing burden of new diseases and health risks and

• neglect of preventive and primary care and public health functions due to underfunding of the

government health care.

The insurance sector is a colossal one and is growing at a speedy rate of 15-20%. Together with

banking services, insurance services add about 6% - 7% to the country’s GDP. A well-developed

17

and evolved insurance sector is a boon for economic development as it provides long- term funds

for infrastructure development at the same time strengthening the risk taking ability of the

country.

There are various types of health coverages in India. Based on ownership the existing health

insurance schemes can be broadly divided into categories such as:

Government or state-based systems

Market-based systems (private and voluntary)

Employer provided insurance schemes

Member organization (NGO or cooperative)-based systems

Government or state-based systems include Central Government Health Scheme (CGHS) and

Employees State Insurance Scheme (ESIS). It is estimated that employer managed systems cover

about 20-30 million of population. The schemes run by member-based organizations cover about

5 per cent of population in various ways. Market-based systems (voluntary and private) have

Mediclaim scheme which covers about 2 million of population. There are many employers who

reimburse costs of medical expenses of the employees with or without contribution from the

employee. It is estimated that about 20 million employees may be covered by such reimbursement

arrangements. There are several government and private employers such as Railway and Armed

forces and public sector enterprises that run their own health services for employees and families.

It is estimated that about 30 million employees may be covered under such employer managed

health services (Ellis et al. 1996). The most popular health Insurance cover is Mediclaim Policy.

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STATE COMPANIES VS. PRIVATE ONES

The final lap towards the privatization of the Health care sector in India was made with the

passing of the IRDA Bill. Till then, control of formal insurance lay with the public sector. This

bill allows for the entry of various private players into various sectors of the insurance industry,

overseen by a regulatory authority, which will control the various entities. It is to be assessed

whether such a system will prove to be effective, in keeping with the three moot points of health

insurance policy in India.

Aggregate cost of providing health care in India

Inequitable distribution of healthcare delivery systems (all metro-centered and poorly

subsidized)

Quality of healthcare benefits

1. Healthcare costs because of entry of private players

Theoretically there are many reasons why entry of private entities into the health

Insurance sector would spiral up costs. HealthCare providers, like doctors, are supposed to be

more informed about their patients’ health, future situation, etc. than the latter himself. This, along

with prospects of being ill and the various opportunity costs of being so makes the demand for

health care quite dependent on the treatment course suggested by the physician. In a regime of

indemnity insurance (also called ‘fee-for-service’-in which the insurer pays for the cost of covered

health care services after they have been provided)), the provider may actually

sell more health care than needed. Also there is the problem of asymmetric information in the

transaction between the insurer and the insured. Once insured, a person feels less the need to take

precautions against ill health. However these effects are likely to have the same effect in any

scenario…public health setting or privately insured.

The major cost spiral due to private entry lies in a third more significant factor.

Under the public sector, which involves the dual functions of financing and provisioning of

services, there are a host of restrictions, especially referral to higher order care and budgetary

limits. Looking at the special insurance programmes of the Indian govt. for its employees- under

the Central Government Health Scheme (CGHS), employees are not eligible for reimbursements

without referrals from the concerned authorities. It is the same for the Employees State Insurance

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Schemes (ESIS), in the organized sector. The case of referrals is not much for outside private

players, but is widespread within the public sector wherein the utilization is

highly biased towards the public hospitals and facilities. One must remember that in India, the

only significant health insurance policy is Mediclaim and the major players are few and all public

sector entities. Here the only choice that one actually has is to decide WHOM to insure HOW

MUCH for. This is quite unlike the west where there is a staggering range of health policies to

choose from, along with various options like HMOs (Health Maintenance Organization) and

PPOs (Preferred Provider Organizations) to aid you.

What are HMOs?

Managed health care institutions that have emerged in India, like the HMOs, which have come up

in the private sector in other countries combine the role of the insured and the insurer and can

therefore help cut costs. This has been seen to a certain extent in countries like the USA. An

HMO is a form of insurer provider that, in return for a monthly premium, provides comprehensive

health care services to its members. It is different from any standard health care insurance

provider in that the patients are required to see doctors only within the company’s network of

physicians. A similar organization is PPOs.

A PPO (Preferred Provider Organization) is a hybrid between a normal health insurance program

and an HMO. Under these programs PPOs contract physicians on a fee-for service basis and allow

visits to specialists without a recommendation from a primary care physician. PPOs tend to be

more expensive than HMOs.

In India, there are also certain small companies that provide what is known as ‘group insurance’.

Employers sometimes provide this to their employees in whom the former pays part or the entire

insurance premium of the latter (which is not much). Insuring large groups together is a viable

option when one considers that not only is the danger of risks in the applicant pool lesser in large

groups (as per the law of large numbers) but also, the administrative costs are lower-Close to

home, GIC offers discounts over 15% for individual insurance to almost 67% for groups of 50

thousand crores or more (Phelps 1997).

Also, employee based group insurance can be promoted (as is being done already to an extent) by

linking it to insurance-linked tax benefits. In India, since the premium can be paid either by the

employees or the employer, tax benefits can accrue to either. It would perhaps be more feasible to

promote employer-based benefits, to aid insurance, especially if corporate income tax rates are

higher than personal tax rates. The same would hold if the employers could gain returns to scale

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through group insurance administration. Specific to developing countries, like India, is another

factor that leads to extremely high health care costs- the financial health of the health insurance

companies.

Many companies in developing nations face inadequacy of even minimum capital

reserves. Plus they also lack sufficient information of the factors that affect health. This is why

they may be charging premiums whose real cost is much less than their benefits offered in a

competitive environment. Adding to this are the foolhardy get-rich quick solutions that these

companies adopt which are highly risk-prone, forcing governments to create expensive bailout

packages that drain the former of the need to be efficient. There is a need to set a minimum

standard of regulations and restrictions with regard to management and personnel, solvency,

capital requirement etc. along with strict control at the national level.

2. Quality of health care in India

Unquestionably, the quality of health care provided in India will improve with the influx of

private insurers. In the free market, as the consumer grows more informed and aware, he desires

better quality- institutions he may choose to label/certify products and services in the health

sector, such that only the reputed brands stay on in the market and the other non-certified ones are

side-lined. As demand for health pushes up its price, the opportunities for well qualified

professionals will increase, but at the same time, so will the supply of low quality workers (fake

degrees, certificates in allopath etc.), which may even lead to deteriorating quality at the margin.

It is here that we need to look at the options of managed care. The developments would be in the

direction of developing a strong information base and accreditation system for the providers. In

India too we have certain similar schemes like SEWA** and (run through NGOs) and these

models need to be examined carefully.

However we need to realize that the arguments for Indemnity insurance are very different from

those for HMOs.There are certain constraints on the latter that may actually be a case for

indemnity insurance. The quality of services offered by HMOs may be compromised to make the

package sold affordable, by empanelling ill-qualified practitioners, etc. There is need for much

harsher control for this to be prevented.

3. Equity Implications of Private Health Insurance

Potentially, the entry of new private players into the market may actually worsen the

equity balance in the economy, in terms of distribution of spending on health.

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One reason is that insurers may indulge in risk selection and screen off any potentially high-risk

clients. Such a process will pose an unfairly large burden on those who are sick and need risk

protection. Exacerbating this will be lack of a suitable buffer in terms of good quality public

health insurance. Public facilities may actually deteriorate with all qualified personnel moving to

the better paying private market. Though there has been an argument advanced that provision of

better quality and higher cost insurance may lead the rich to adapt to it, leaving the lower priced

policies to the less well off. However, we find that such a trend is highly insignificant in terms of

the percentage of the elite moving away, considering the many subsidies they receive on these

very public policies. The only way this will happen is if the quality differences between the

private and public sectors are very large and the premium on private insurance very cheap, which

is an extremely unlikely situation.

Worldwide concurrence is that inequality will worsen with market opening up, until the

regulatory authorities address these problems with measures like limiting the number of policies

that will be on offer, controlling price, etc. However, this negates the very point of opening up of

the health insurance sector.

In the liberalized insurance market, there will be multiple distribution channels, which will

include agents, brokers, corporate intermediaries, bank branches, affinity groups and direct

marketing through telesales and Internet. Some channels will be cheaper than others. Hence there

will be competition among the channels. The new insurers will operate with the help of multiple

distribution channels but the existing insurers may be forced to operate only with the help of

agents. Hence, intense competition will grow among the old and new insurers in the market to win

the consumers. This will pose a great challenge to the insurers in the liberalized insurance market.

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THE CHANGING ATTITUDE

…from self- centric to consumer- oriented

With medical costs running into hair-raising amounts these days and so little supply of quality

health care, this remains a seller’s market. State run health care services of course are decrepit.

The quality of public health services as judged by improvement in public health indices, is closely

linked to public funding in

the primary health sector. From the table we see that India does not compare favourably as

compared to the others:

Table: Public health spending in different countries

currently 2/3rds of India relies on private services in health insurance, which account for 82.7% of

total health expenditure. Considering that taxpayer money is proving unequal to the task, risk-

pooling mechanism is the safest bet.

Till recently the monopoly on health insurance in India was held by Mediclaim, which was more

self–centric than consumer-centric. It treated every claim with characteristic bureaucratic

suspicion, paying it only upon submission of the bill, in a classic case of reimbursement. By

contrast, insurers in the USA ensure that the patient need not even open his wallet. Private

businesses groan that the business is not profitable. The Mediclaim policy has a claim ratio of

over 140%…so if health insurance policies are to be prepared, premiums will have to be pushed

up.

Drug prices are rising; the add-ons in medical treatment are increasing due to an

increase in “defensive medicine practices”. Also there has been a continuous rise in

lifestyle diseases, all these leading to an increasing demand for better health care

services. The good news is that with the launch of the HMOs, being TPAs between the insured,

hospital and the insurer, change maybe at hand. The IRDA has invited applications already, with

the basic criterion being a minimum paid-up capital of Rs. 100 crore.

23

The insurance sector is indeed being seen in a broader frame of reference now, with

companies offering various add-ons, which often overshadow the basic benefits of the policy.

There are tax saving inducements and investment returns that consumers look forward to. With a

burgeoning middle class that is growing increasingly aware of its rights, we find that consumers

are more health-oriented and will not compromise on quality. Which is why the various private

and state players are recharging their consumer service batteries through prompt and courteous

response to consumers, explaining all decisions fully and pay all valid claims as soon as possible-

the key brand mantra here is “customer friendly”. State-run players are preparing to re-launch

their services. Relationship networking will play a significant role in this. Various strategies are

being put into play to monitor claim prone accounts and focusing on the appropriate level of

premium for non-tariff business. The health segment is showing signs of stirring already through

the recent launching of

its Ashray Beema Policy, which is a savings-linked health plan. Also, Birla Sun life is

offering a 14- days free period within which any dissatisfied consumer gets back his/her money.

Max life has a similar 10-day plan. Expect a slew of innovations- with companies targeting

segments (niche Marketing), a host of policies specific to consumer segments, increasing

consumer base, etc. It is only appropriate to consider here, that the opening up of the insurance

sector has raised high hopes among people, both in India and abroad. There are high expectations

about how the private insurer will fulfill the aspirations of the customers (clients or the insured) in

India by catering to all types of Health insurance including Managed Health care. But the pace at

which the privatization modalities, viz., granting of licenses and starting of the insurance

operation in the last one year has begun to dilute those expectations. Some of the major Health

insurance players of the world like Cigna, Aetna and others are still watching the Indian Insurance

market from the fence. Others, who have got the license for the general insurance, are not too

keen or enthusiastic about Health insurance, particularly about the Managed Health Care. If the

insurance reforms do not cater to the acute need of the customers for Health care, the rationale for

opening the insurance sector to competition may be at state.

24

Current Policies available in market, the major players &

important schemes.

When talking of health insurance in India, the first name that comes to mind is Mediclaim, which

is GIC’s health insurance policy and has been the only policy of any real note in the country even

though it may seem unattractive to any person who has been used to a comprehensive health

insurance policy. As of now there are only two players in this field, Life Insurance Corporation

and the General Insurance Corporation (with its four subsidiaries.) Mediclaim is the health

insurance scheme offered by GIC and Jeevan Asha is the health insurance scheme offered by LIC.

The General Insurance Corporation (GIC) was formed by a Legislative Act; it is a merger of more

than a hundred private companies. It was then regrouped into the 4 subsidiaries of GIC: National

Insurance Company, New India Assurance Company, Oriental Insurance Company, and United

India Insurance Company.

25

GIPSA

India’s General Insurers Public Sector Association (GIPSA), have shortlisted 9 companies to

create a captive joint-venture third party administrator (TPA) to manage their cashless claims

services.

GIPSA’s group of four public sector general insurance companies — New India Assurance;

United India Insurance; Oriental Insurance and National Insurance; own 80% of India’s cashless

claim insurance market and are set to make their decision on their partner for the TPA in two

months. Among the 9 who are considered for the TPA are US companies Aetna and United

Healthcare.

It aims to utilise technical support from the proposed joint-venture TPA to control and recover its

recent health insurance losses that have resulted from mismanagement of its cashless service

claims. GIPSA are currently undergoing a process of change in their approach to health insurance

and therefore announcing their decision to build their own TPA.It has in turn caused turmoil

among the existing TPA’s in India, given that GIPSA accounts for over 80 per cent of business

for TPAs; TPAs are concerned that a captive company will overthrow the market. The TPA’s

have addressed their concerns to the Competition Commission of India (CCI), and have asked

GIPSA to refrain from a decision until the CCI responds, which is expected sometime in the next

few weeks.

On July 1st 2010, GIPSA set forth the Preferred Provider Network (PPN), setting new

requirements for hospitals offering cashless services in India. Under the PPN, GIPSA fixed the

cost for 43 common surgical packages, offered as part of the cashless claims insurance policy.

Hospitals enrolled in the PPN would have to meet these requirements and agree to the fixed costs

of procedures in order for their patients to be able to utilize the cashless claims insurance services.

Shortly after the PPN was established, the number of facilities offering cashless services fell from

900 to just over 70 hospitals. A number of hospitals were said to be reviewing and adjusting their

fees in order to participate in the PPN.

Healthcare providers have argued that the fees set by the PPN are too low and in turn are

damaging the quality of services that the hospitals can offer. The medical fees set by insurance

companies were said to fall 50 percent lower than other hospital rates. On 13th of August 2010,

the Association Medical Consultants, Mubai (AMC) publicly urged all hospitals listed on the PPN

to withdraw their enrollment and for all remaining hospitals to refrain from offering cashless

services.26

According to M. Ramadoss, MD of New India Assurance, ‘Rates could vary from hospital to

hospital, based on location, facilities, and equipment. It’s not a one-size-fits-all solution. If there is

an industry standard for standard rates, we will welcome it. Due to the absence of it, I have to step

in, but not to rob hospitals of their profits. We have benchmarked average costs of the previous

two-three years and have used recommendations of doctors on panels for frozen standard rates for

procedures and treatments’.

GIPSA is hoping to increase the number of hospitals listed on their network, however, given the

discrepancy of healthcare fees, the number of hospitals listed on the PPN may drop in return.

However, given that an increasing number of recognizable hospitals are joining the PPN,

including Jaslok Hospital, some hospitals in India fear they may lose customers over competition.

Recently established Medanta Hospital joined the PPN in order to increase its patient numbers, as

well as Sir Ganga Ram Hospital which recently had several top doctors leave. A couple of other

big institutions are also said to be in negotiation with GIPSA to join the PPN including hospital

chains Max and Apollo as well as the Bombay Hospital and Kokilanben Dhirubhai Hospital.

Fortis Group is also another large hospital chain that is likely to enroll in the near future.

GIPSA has argued that the PPN is a ‘policy-holder friendly system’, given that the low hospital

rates would reflect in its low premiums. It also allows policyholders to claim directly, without

going through the reimbursement process and therefore not having to worry about insurers not

covering the treatment. However on July 1st 2010, the Union Government of India introduced a

10.3% service tax charge to every cashless claim made by patients under the insurance policy.

Although the service tax is paid through TPAs, as they reimburse the hospital claim, the patient’s

policy is ultimately affected – given the accommodation needed for the service tax fees which is

likely to increase the insurance premium in the long run. Patients who claim through the

reimbursement system are not charged the service tax fee.

GIPSA have experienced considerable losses on their cashless service claims, as the medical costs

incurred from claims has so far outweighed their premium revenue. The loss ratio, in some

instances, was calculated as high as 130 per cent. The PPN have therefore set tight limitations on

hospital packages, with the aim to avoid future mismanagement of claims.

Media outlets have questioned whether the losses faced by GIPSA were partially due to over

inflated or falsified bills submitted by hospitals, however the AMC argued that this claim was

‘preposterous’. The AMC believe the losses faced by GIPSA are ‘over-exaggerated; due to faulty

product designs and mistakes made in working out the premiums; and due to connivance of the

27

TPA’s in passing false/over-exaggerated claims’. The AMC says they will negotiate with GIPSA

to get a ‘fair deal for all our members’.

There are currently 9 companies competing for the opportunity to be part of the joint-venture

TPA. Aetna is continuously seeking ways of expanding its market globally and this is one of its

most recent moves. Other companies looking to become GIPSA’s partners in the captive TPA

include United Healthcare, Patni Computers; Coris International; Cambridge Solutions; Lason;

and existing TPA’s E-Meditek & Medi Assist.

THIRD PARTY ADMINISTRATORS (TPAS)

TPAs are essentially insurance intermediaries, which undertake the entire administration of health

plans for insurance companies. Apart from settling claims, TPAs also process business, offer

customer service and technical support.Private players have taken the lead and engaged TPAs to

help them service policyholders who have taken health covers. Iffco-Tokio Marine General

Insurance, ICICI Lombard General Insurance, Reliance General Insurance and Royal Sundaram

General Insurance have already signed up their respective TPAs.

The idea behind hiring TPAs is to reduce the high claim ratios by eliminating fraud cases. While

TPAs' network with hospitals and interaction with doctors is expected to reduce claims

substantially, insurers also wish to improve customer relationship through their TPAs.In a bid to

give a shot in the arm to the health insurance sector, the Insurance Regulatory & Development

Authority (IRDA) has allowed third party administrators (TPAs) in the health insurance sector to

tie up with more than one insurer, but mandated a stringent code of conduct.

IRDA (TPA-health services) Regulations 2001 has barred TPAs to advertise products without

approval of insurance companies while envisaging strict confidentiality in information shared

with insurers.

A TPA also has to undergo a training of minimum three months in the field of Health

insurance and have access to competent medical professionals to advise the insurance companies

and the client on various matters.

They would have to renew their licences from IRDA every three years and inform the

authority if there is any change in shareholder patterns involving more the 5 per cent equity.

28

The Code of Conduct laid down by IRDA said that TPAs would have to bring to notice of

insurers any adverse report or inconsistencies or any material fact that is relevant to the insurers

business.

It also says that TPAs would have to bring to notice of insurers any adverse report or

inconsistencies or any material fact that is relevant to the insurers’ business.

Problem areas of TPAs

TPAs is that the cost of these services have been factored into health plans of all the new players

and they are 30 to 35% dearer than health plans of nationalized insurance companies. Anyway, at

present TPAs do not allow individuals to avail of health insurance policies from them. The state

general insurance companies will

deliberate on whether they can absorb the cost of hiring TPAs or else whether the cost of

Mediclaim has to be revised upwards. They will also have to decide whether TPAs will service all

policyholders or be limited to a certain clientele. There are strong reasons why some officials feel

that appointing TPAs is not a commercially viable decision.

For every Rs 100 premium the insurance company collects, it spends Rs 141. Add to this the

service charges payable to the TPA and the net outgo on the said premium would only increase.

The problem gets compounded with IRDA’s ruling on TPA charges. IRDA has categorically

stated that the service charge cannot be added to the premium. This effectively means that TPA

charges will have to be borne by the insurance company. They will not be able to increase the

premium as the competition is intensifying and on the other hand it would be difficult to shoulder

the burden of TPA charges over and above the existing problem of revenue deficit. This doesn’t

mean though that there are no uses of TPAs. Since they analyse trends, they are able to keep a

check on treatment pricing levels.

A TPA with a good network can lower chances of fraud because of the steady business that it

provides to the hospital. And the most important: the TPAs means cashless health care delivery

to policyholders, along with trauma support and other advisory services.

A cashless scheme under a TPA is a customized health insurance scheme generally

devised as a Group Health insurance scheme and put in place by a Third Party

Administrator (TPA). Here when the insured is hospitalized he/she need not pay for

medical expenses incurred. Medical Expenses incurred are settled by the TPA directly with the

concerned medical institution as per the terms and conditions of the health insurance package. 29

Any amount that is not payable under the insurance scheme will be borne by the insured

himself/herself and will have to be reimbursed by the TPA. This is quite unlike the Mediclaim

policy, which is basically a reimbursement scheme where the insured, when hospitalized, pays the

medical institution, submits the claim to the insurance company and gets reimbursed as per the

terms and conditions of the policy.

Thus TPAs are here to stay and the pros as of now seem to outweigh the cons.

Employee State Insurance (ESI) Scheme

Under the ESI Act, 1948 ESI Scheme provides protection to employees against loss of wages due

to inability to work due to sickness, maternity, disability and death due to employment injury. It

also provides medical care to employees and their family members without fee for service. When

implemented for the first time in India at two centres namely Delhi and Kanpur simultaneously in

February 1952, it covered about 1.2 lakh employees. Presently the scheme is spread over 22 states

and Union territories across India covering 91lakh employees and more than 350 lakh

beneficiaries. The Act compulsorily covers: (a) all power using non-seasonal factories employing

10 or more persons; (b) all non-power using factories employing 20 or more employees and (c)

service establishments like shops, hotels restaurants, cinema, road transport and news papers are

covered. ESIC is a corporate semi-government body headed by Union Minister of Labour as

Chairman and the Director General as chief executive. Its members are representatives of central

and state governments, employers, employees, medical profession and parliament.

The financing of the scheme is done by Employees State Insurance Corporation (ESIC) which is

made up of contributions from: (a) employees who contribute at the rate 1.75 per cent of their

wages (if daily wage is Rs.25 or less, his contribution is waived); (b) employers who contribute at

the rate of 4. 75 per cent of total wage bills of their employees to contribution on behalf and for

employees having daily wage of Rs. 25 or less; and (c) State Governments contributes 12.5 per

cent of total shareable expenditure worked out by prescribed ceiling on expenditure which is Rs.

600 per insured person per annum and expenditure incurred outside/over and above the prescribed

limit.

The State Government runs the medical services of this scheme of social insurance meant for

employees covered under the ESI Act 1948. This scheme - compulsory and contributory in nature

- provide uniform package of medical and cash benefits to insured persons is implemented

through special ESI hospitals and diagnostic centers, dispensaries and panel doctors. The delivery

of medical care is through service (direct) system and/or panel (indirect) system. It provides

30

allopathic medical care, but medical care by other systems like ayurvedic and homeopathy in the

states is also provided as per the state government decision. The medical care consists of

preventive, promotive, curative and rehabilitative types of services are provided by the scheme

through its own network or through arrangements with reputed government or private institutions

by concept of proper referral system and regionalisation.

Existing infrastructure under ESIS in India

Particulars

No. of Centers 632

No. of Insured Persons/Family

Units

84,45,000

ESI Hospitals 125

Number of ESI Hospital Beds 23,334

ESI Dispensaries 1,443

Insurance Medical Officers 6,220

Insurance Medical Practitioners 2,900

Preventive services include immunization, maternal and child health, family welfare services.

Promotive services include health education and health check-up camps. Curative services

include: dispensary care, hospital care, and maternity care, supportive services including

diagnostic centre, drugs, dressings, surgical procedures, dental care, prosthesis and other

appliances. Rehabilitative services include: physical rehabilitation, economical rehabilitation, and

provision of artificial aids (social, psychological rehabilitation)

Even though the scheme is formulated well there are many problem areas in managing this

scheme. Some of the problems are:

• Large number of employers try to avoid being covered under the scheme,

• A large number of posts of medical staff remains vacant because of high turnover and lengthy

recruitment procedures,

• There is duality of control,

• Rising costs and technological advancement in super specialty treatment,

• Management information system is not satisfactory.

• There is low utilization of the hospitals

• The workers are not satisfied with the services they get.

• In rural area the access to services is also a problem.

31

Some of the state governments have to subsidize the scheme heavily even though the ESI

Corporation, which is the financial arm of the system, has much surplus funds. All these problems

indicate an urgent need for reforms in the ESI scheme (Vora, 2000). Some of the options for

reforms in ESI scheme could be: making the scheme autonomous- managed by workers and

employers while government only retails controls through a guiding framework as is the case with

German Sickness Funds. Secondly the scheme should be made open for non-organized sector

through fixed income based contribution. This will extend the benefits of the scheme to many

more people. The government should set the patient care standards and monitor outcomes as well

as patient satisfaction. The management of the health facilities also needs to be improved

substantially. The financial management of the scheme also needs improvement.

Health insurance for poor by NGOs

With 70 per cent of population in India living in rural areas and 95 per cent of work-force

working in unorganized sectors, and disproportionately large percentage of these populations

living below poverty line, there is strong need to develop social security mechanisms for this

segment of population. This need for security is further increased because the poor are the most

vulnerable for ill health, accidents, death, desertion, social disruptions such as riots, loss of

housing, job and other means of livelihood. There are some efforts in this direction of providing

social security to the poor by a few NGOs. The most prominent among them is that of Self-

Employed Women's Association (SEWA). The other scheme by government insurance companies

developed to focus on poor is called Jan Arogya Bima Policy which was introduced in 1995 and

covers expenditure up to Rs. 5000 for a premium of Rs. 70 per annum.

It is estimated that about 5 million people are covered under various NGO insurance schemes.

The experience from other countries suggest that in developed countries such as USA, UK, the

health insurance have grown out of small non-profit schemes. A large share of health insurance

market in USA is in not-for-profit sector. There is need in India to promote these schemes as they

address the needs of the poor. Over the last few years in India small and big NGO's like

Tribhuvandas, SEW A, ACCORD etc. have implemented the insurance schemes. Many of these

schemes are designed to meet the needs of the poorer segments of the community. They have

developed several innovations such as

• mechanism of monitoring the performance,

• pricing of various services,

• integration of various risks in one single product, 32

• linking of insurance schemes with savings,

• coverage of many services not included in market based schemes such as maternity services,

transportation, coverage of risks such as from riots, floods etc.

Some NGOs have developed special linkages with public health systems, private facilities and

also accessed resources through insurance companies.

SEWA's Health Insurance and Social Security Schemes for the Poor

Poor women are the most vulnerable sections of a developing society. SEW A - a membership

based women workers' trade union, has developed an initiative to protect the poor women from

financial burdens arising out of high medical costs and other risks. Each member has option to

join the programme by paying Rs. 60 per annum and it provides limited cover for risks arising out

of sickness, maternity needs, accidents, floods and riots, widowhood etc. The scheme is also

linked with saving scheme. Members have the option to either deposit Rs. 500 in SEW A Bank

and interest on this deposit will cover the annual premium or pay annual premium of Rs. 60. The

scheme has 30,000 members and is expected to grow to 50000.

In the beginning the SEW A started this programme with the support of one of the public sector

insurance companies. The experience of SEW A has been that the insurance companies are not

well equipped to handle the present day complexities of health insurance particularly in context of

lower income group needs. Given the bureaucratic rigidities in settling the claims, procedures,

which one has to follow, and poor monitoring mechanisms make it difficult for the poor to

continue with these schemes. For example, the patients belonging to lower income groups opting

for the schemes would need systems which are simple, flexible, prompt, relevant, having less

paper work and have fewer tiers. The design of the product including what it covers, scope of

coverage and at what premium are important considerations for people belonging to lower income

groups.

SEWA experience suggests that the design of the insurance products have to be integrated with

several add-ons that may be priced differently. For example, health risk coverage should include

sickness as well as maternity aspects. SEW A experience illustrates that other aspects of risk

which need coverage include natural and accidental death of women and her husband,

disablement, loss because of riots/flood/fire/ theft etc. The overall premium has to be low. There

has been lot of emphasis and education in the community on understanding the concept of

insurance. This awareness is growing. The linkage with the providers has been critical aspect in

keeping this cost of scheme down. At the same time the member has complete choice in selecting

the provider but the reimbursement is limited. It has been observed that costs in private are more

33

than 5 times than what they are in public sector hence developing linkages with the public

facilities are therefore critical. This also depends on quality of care at public facilities. The overall

experience of SEW A's health insurance has been encouraging. Women have started to seek

health care and have been asking to enlarge the scope of the scheme. The scheme has tried to

address the special needs of women health by allowing the other systems of medicine, which is

quite popular in various places and paying for maternity related expenses which are not covered

by Mediclaim scheme. The scaling up of the scheme and increasing the coverage is the most

important management and organizational challenge. Recent study of the members of the SEW A

scheme by Gumber and Kulkarni (2000) also indicate its usefulness.

Other NGO health insurance schemes

Over the last several year there has been efforts to develop health insurance by various small

NGOs. Some of the prominent among them have been ACCORD in Karnataka, Tribhuvandas

foundation, Aga Khan Health Services, India (AKHSI) and Nav-sarjan in Gujarat, and Sewagram

medical college Maharashtra. ACCORD works with tribal population in forested areas

ofKarnataka, AKHSI works with Ismaili population in North Gujarat, Tribhuvandas Foundation

works in villages of Kheda district where there are strong milk producing unions of Amul Dairy

Cooperative, Nav-sarjan works with schedule castes in 2000 villages of Gujarat. Ranson (1999)

has reviewed NGO efforts in India in this field. There are some common features of NGO

schemes. The coverage of these schemes vary and most use their own health workers to provide

primary care and have tied up with a hospital to provide secondary care. Premiums are low,

generally fixed and not related to risk. Most schemes have limited coverage and some also

provide wider services besides health and treatment. All these organizations had good track record

of services in the community and then added on health insurance on their existing activities hence

they did not have to establish credibility with the community. The key feature among them was

low premium and low coverage. These NGOs have shown that it is possible to develop a model of

health insurance for the poor without much subsidy. The experience also suggests that if a

credible NGO exists then it is not difficult to develop health insurance as an add on benefit. What

is unclear and need to be researched is that what amount of total health expenditure does these

scheme covers for the poor given that their coverage is limited.

34

The Current Scenario

Health Insurance is an important part of Indian Insurance market and it portfolio which growing at

the highest rate. Therefore various proposals are under consideration at different levels with

IRDA, Insurance Companies, Government Agencies & Corporate bodies. According to

newspaper reports some of these are:-

17 General Insurance Companies and 3 Health Insurance companies are at present selling health

insurance. During 2009-10 premium figure is estimated to have touched Rs. 8100 crores.

(1) Number of stand-alone Health Insurance companies is increasing at a slow pace. Star Health

was the first health insurance co and it was followed by Apollo Munich which started operations

in August 2007. Max Bupa has started operations in April 2010. Religare is planning to start

operations in near future but without any foreign partner.

(2) In view of increase in medication as well as health care costs the sum assured limit of Rs.

5,00,000 has been steadily increasing and now many companies are issuing policy of Rs,

10,00,000. Max Bupa has introduced a product where even a policy of Rs, 50, 00,000. can be

issued and that too to a person of 80 years. It is a good charge.

(3) More and more life Insurance Companies are now selling Health Plans –which is a

combination of Health Insurance and Mutual fund. It is foreseen that SEBI view on Mutual fund

will have impact on this product also.

(4) Hospitals / Pharma Co’s may become promoters / investors in health insurance companies. It

may result in better healthcare management as resources can be effectively utilized for the welfare

of the society. But reach can be limited as India is a very large country. Contribution of 3 large

corporates Max, Fortis & Apollo will be merely a symbolic thing.

(5) Our projections are that by 2015 Health Insurance premium will touch Rs, 35,000 crores and

by 2025 it will be Rs, 4,00,000 crore industry.

(6) Concept of Co pay or co-payment will get strengthened year by year and we foresee it will be

introduced for all type of health insurance policies by 2013.

(7) RSBY has become a success. More and more states will introduce this and coverage of those

35

who are BOP (Below the poverty line) and are in unorganized sector will increase.

(8) In 8 to 10 years most of the General Insurance companies in India will withdraw from Health

Insurance scene as they will not be able to cope up with losses and we will see more and more

stand-alone Health Insurance Companies entering the field and they will become stronger year by

year. Their number will also increase as Government may:

- Permit 100% foreign ownership in stand alone Health Insurance companies in near future.

- Reduce equity requirement for Health Insurance Companies at Rs 50 crores (instead of Rs 100

crores at present).

(9) General Insurance Companies will consider setting up of 100% owned Health Insurance

Companies as subsidiary companies. Reliance General may make the beginning by setting up

Reliance Health Insurance.

(10) Mergers & Acquisition will start in Indian Insurance industry and in 2011 (may be in 2010)

we will see firms like Royal Sundaram getting merged with Reliance General Insurance.

At present (2009-10) Private insurance players are having market share of 40% in health

insurance. Their market share has increased from 12 per cent in 2003-04 to 40.00% during this

year. The market share of public sector companies has come down to 60%, which was expected. 4

PSU’s may set up 1 strong Health Insurance Company as a stand-alone company to face

competition. They may also go in for 1 stand-alone TPA fully owned by them.

Star Health has become No. 4 Company as far as Health Insurance is concerned. They have

beaten National Insurance.

(11) Some of the small TPA’s may exit the scene as they will find business to be unviable as more

and more insurance companies will go in for in house processing of claims.

36

FORCASTING & STATISTICAL STUDY

MARKET SIZE & FORCAST

The Indian healthcare insurance industry was worth INR 5,125 crores compounded annual growth

rate of approximately 37 % between 2002 and 2008.The market penetration is only 2% of the total

population in India. The health insurance industry is one of the fastest growing segment among

others non-life insurance segment.

37

The India health care insurance industry is worth INR 60,497 crorers with compounded annual

growth rate of approximately 42.3% between 2008 – 2015.The market penetration will be 3 folds

higher in 2015.according to the world bank repeot,99% Indians will face financial church in case

of any critical illness. Hence need of health insurance.

38

In order to encourage foreign health insurers to enter the indian market, government has recently

proposed to raise the foreign direct investment limit in insurance from 26% to 49%.Government

initiatives are always supportive to health care insurance sector.

39

Market restraints

40

Health insurance forms a low productivity of the total business for the life insurance companies in

India (0.2% of the individual regular premium of FY 2008), it forms a significant proportion of

the business for non-life Insurance companies (approx. 18% of the total Gross Written Premium

for FY 2008)

41

The market in the current scenario is oligopolistic in nature and there is a fair possibility in future that the market of the firms with homogenous product offering ending with Perfect Competition

42

Health Insurance Premium - Company wise Analysis

Private companies have doubled their market share since 2004. The public sector are increasingly

losing their market share. The public insurance companies accounts for 62% while the private sector

accounts to 38% of the Indian Health insurance market in 2008.

43

38%

62%

Public vs. Private Health In-surance Companies Market

India (2008)

Private

Public

Companies 2007 2006 DifferenceIncrease %

Reliance 67.69 8.61 59.08 686.18ICICI Lombard 735.85 274.46 461.39 168.11HDFC Chubb 10.18 4.55 5.63 123.74Star Health 11.05 0 11.05 100.00Royal Sundaram 97.45 50.59 46.86 92.63Cholamandalam 38.6 21.11 17.49 82.85bajaj alliance 158.26 97.69 60.57 62.00TATA-AIG 45.35 30.62 14.73 48.11IFFCO Tokio 71.89 51.97 19.92 38.33Oriental 440.53 359.72 80.81 22.46United India 434.64 359.26 75.38 20.98New India 765.29 669.28 96.01 14.35National 333.12 294.25 38.87 13.21Total 3209.9 2222.11 987.79 44.45Private 1236.32 539.6 696.72 129.12Public 1973.58 1682.51 291.07 17.30

Conclusion

The market is now in such an evolving phase that one can expect a lot of action in the coming

days. The current impediments for foreign participation – like 49% equity cap on foreign partner,

well defined regulatory role of IRDA (Insurance Regulatory development Authority- ) etc.— will

definitely help in leading health insurance to become one of the most robust sector of the Indian

economy. hence The early adopters will now have a clear advantage compared to laggards in

gaining the market share and market leadership. They are at least sure right now that all their

infrastructure is in place so that they can reap the benefit of an "unlimited potential."

Competition will surely cause the market to grow beyond current rates, create a bigger "pie," and

offer additional consumer choices through the introduction of new products, services, and price

options. Yet, at the same time, public and private sector companies will be working together to

ensure healthy growth and development of the sector. Challenges such as developing a common

industry code of conduct, contributing to a common catastrophe reserve fund, and chalking out

agreements between insurers to

settle claims to the benefit of the consumer will require concerted effort from both sectors. The

challenge is also to see that it benefits the poor and the weak in terms of better coverage and

health services at lower costs without the negative aspects of cost increase and over use of

procedures and technology in provision of health care. The experience from other places suggest

that ifhealth insurance is left to the private market it will only cover those which have substantial

ability to pay leaving out the poor and making them more vulnerable. Hence India should

proactively make efforts to develop Social Health Insurance patterned where there is universal

coverage, equal access to all and cost controlling measures such as prospective per capita payment

to providers. Given that India does not have large organized sector employment the only option

for such social health insurance is to develop it through co-operatives, associations and unions.

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Biliography:

Gumber A., Kulkarni V. 2000. Health Insurance for Informal Sector: Case Study of

Gujarat.

‘Health Insurance in India: Opportunities, Challenges and Concerns’, Indian Institute of

Management, Ahmedabad.

‘A note on policy initiatives to protect the poor from high medical costs’, Indian Institute

of Management, Ahmedabad.

Convocation Address at the Institute of Insurance and Risk Management by - Dr. C.

Rangarajan Chairman Economic Advisory Council to the Prime Minister

Websites:

www.irda.com

www.globalinsurance.com

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THANK You!!!

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