Health Insurance Industry in India: Prospects and Challenges
Health Insurance Industry in India: Prospects and Challenges
Health Insurance Industry in India: Prospects and Challenges
Timira Shukla
Professor, Marketing Institute of Management Studies, Ghaziabad [email protected]
Abstract
Health is a human right, which has also been accepted by the constitution. However, its availability, accessibility, affordability are at abysmal levels especially in India. While the well to do segment of the Indian population, both in rural and urban areas have access towards medical care, a large section still remains unserved and under served. Health care has always been a problem area for India, a nation with large population and a larger percentage of that still being below the poverty line. Though considerable progress has been made, since Independence, high mortality and negligible medical facilities correlated with the population size remain a problem area. The share of public financing in total health is just about 1% of GDP as compared to 2.8% in other developing countries. The reforms have successfully opened up the insurance sector but this need to be strengthened further as major share of health financing is through out-of-pocket payments by individuals. It should be borne in mind that sickness is not an individuals misfortune but a subject of states responsibility. This paper examines how health insurance has fared in India and the reasons for its performance and an analysis of the future prospects.
The social insurance schemes such as ESIS (Employee State Insurance Scheme) and CGHS (Central Government Health Scheme) cover only around 3% of the total population. In the private sector healthcare industry, healthcare is owned and managed Institute of Public Enterprise
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Health Insurance Industry in India: Prospects and Challenges by for-profit companies (one of the factors responsible for growth of medical tourism in India) as well as not-for- profit or charitable organizations (which provide medical services at subsidized rates or free of cost). One of the major limitations faced by the private sector is the low penetration of medical insurance, which meant that almost everyone paid out of their pocket. Therefore, many could not afford medical care, as the fees were much higher than government-run hospitals. With increasing population and life expectancy, together with limited government spending on healthcare the quality of services at these centers also suffered. Thus access to healthcare is becoming more and more problematic. This factor highlights an urgent need for alternative finances, including provision for medical insurance, which are lacking. Indias insurance industry needs capital, and a major source of capital would be from foreign investors, which are now limited to 26% ownership. According to WHO Report (refer Table 1.1) healthcare spending in the country will double over the next 10 years. Private healthcare will form a large chunk of this spending, rising from US$ 14.8 billion to US$ 33.6 billion in 2012. This figure could rise by an additional US$ 8.4 billion if health insurance cover is available to the rich and the middle class. The voluntary health insurance market estimated at US$ 86.3 million currently is also growing at a rapid pace.
Table 1.1 Health care spend in India is considerably lower than that in other countries
2004 Life Expectancy (avg. no. of years) No. of Physicians Per 1000 people Health care spend (USD per capita) Healthcare spend (% Of GDP) Source: WHO Annual Report US 77.4 2.7 5,365 13.2 UK 78.3 1.9 3,036 8.4 Maxico 72.6 1.7 336 5.5 Brazil 71.4 1.2 236 7.5 China 72.5 1.7 62 5 India 64 .4 32 5.3
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Health Insurance Industry in India: Prospects and Challenges insurance is that, in the case of health insurance, there are more stakeholders than in other types of insurance and this makes the whole process more complex. Other than the number of stakeholders, there are different types (based on profit motive and ownership) for each stakeholder, which makes health insurance more complex. The following matrix figure 1.2 describes this:
Community Based Health insurance Employee State Insurance main stakeholders in the health insurance system include healthcare providers, insurance companies, customers, third party administrators (TPAs) and regulators. The following diagram 1.3 depicts the Standard Health Insurance model:
Whatever the business model, the basic premise of risk pooling is same as universal healthcare which is non-existent. In India anyone who can afford it, is opting for private delivery via health insurance, third party administrators and private care. The
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And money wise, the health insurance sector stands at just 3% of the insurance sector. This highlights that India has one of the largest insurable populations in the world. The oldest and most important form of insurance is Indemnity Insurance (e.g. Mediclaim), where the insurer first pays to the hospital and then the claim is made. It is only recently that companies have launched cashless claim facility wherein the major advantage is that the insured is not required to settle bills upfront; instead the insurer settles the bills on behalf of the policyholder. Medical insurance is usually of four different kinds, viz. individual insurance, family insurance, floater insurance and Group insurance. Health insurance industry consists of diverse players offering varying products/ schemes to entice the Indian consumer. Healthcare insurance premium collected in 2005-06 registered a growth of 35% over the year 2004-05.The private players registered a growth of 77% and public players a growth of 25% over the last year (refer figure 11.4).
Figure 11.4
Insurance Regulatory and Development Authority (India) which is an apex body for the insurance industry
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Health Insurance Industry in India: Prospects and Challenges The community-based health insurance (CBHI) is still in its nascent stages but likely to grow. The rise in literacy rates with increasing awareness through mass media is also fuelling growth. Along with rising incomes (refer figure1.5) the attitude of Indian consumers towards healthcare has also changed, from neglecting it to one of the essentials for a better life. Healthcare not only means cure or treatment but it is the prevention, treatment and management of illness. Stress free lives where the body, soul and mind are relaxed are important parameters of health. Other factor why Health Insurance is becoming popular in India is the escalating cost of medical treatment today, which is beyond the reach of the common man. In case a medical emergency arises, the cost of a hospital room rent, the doctors fees, medicines and related health services usually work out to be a huge sum. It is in such time that having a health insurance policy ensures that one is provided with the much-needed financial relief.
Figure 1.5
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no-claim bonus behind her. One should always ensure that your spouse also have health cover. Group insurance also covers maternity expenses except for Royal Sundaram. At this stage one can also take a floater mediclaim. In a floater the sum insured can be used to cover all the members of the family or any one of them. The premium is slightly higher than the normal mediclaim plan.
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Rs.794 Rs.1278 Rs.1917 Rs.2479 Rs.2789 Rs.5841 Royal Royal Royal Royal Royal CholamaSundaram Sundaram Sundaram Sundaram Sundaram ndalam Rs.1195 IFFCOTOKIO Rs.1195 IFFCOTOKIO Rs.2220 Rs.3140 Royal IFFCOSundaram TOKIO Rs.2220 Rs.3140 Royal IFFCOSundaram TOKIO Rs.3918 IFFCOTOKIO Rs.3918 IFFCOTOKIO Rs.4697 IFFCOTOKIO Rs.4697 IFFCOTOKIO Rs.5841 Cholamandalam Rs.5841 Cholamandalam
Rs.3330 Rs.4218 Rs.4745 Rs.6677 40 Rs.809 Rs.1402 Rs.2220 Royal CholamaRoyal Royal Oriental Royal Royal Insurance Sundaram Sundaram Sundaram Sundaram Sundaram ndalam 45 Rs.809 Rs.1566 Oriental Oriental Insurance Insurance Rs.2951 Oriental Insurance Rs.4117 Oriental Insurance Rs.5138 Oriental Insurance Rs.6157 Rs.6677 Oriental CholamaInsurance ndalam
50 Rs.1265 Rs.1886 Rs.3424 Rs.5326 Rs.6747 Rs.7590 Rs.10302 Oriental Royal Royal Royal Royal Royal CholamaInsurance Sundaram Sundaram Sundaram Sundaram Sundaram ndalam 55 Rs.1265 Rs.2447 Oriental Oriental Insurance Insurance 60 Rs.1799 Rs.2255 Oriental CholamaInsurance ndalam 65 Rs.1984 Rs.2255 Cholama- Cholamandalam ndalam 70 Rs.2369 Rs.5196 Cholama- Oriental ndalam Insurance Rs.4680 Oriental Insurance Rs.4002 Cholamandalam Rs.4002 Cholamandalam Rs.10018 Oriental Insurance Rs.6664 Oriental Insurance Rs.5935 Cholamandalam Rs.5935 Cholamandalam Rs.14428 Oriental Insurance Rs.8483 Oriental Insurance Rs.7695 Cholamandalam Rs.7695 Cholamandalam Rs.10302 Rs.10302 Oriental CholamaInsurance ndalam Rs.9140 Cholamandalam Rs.9140 Cholamandalam Rs.14669 Cholamandalam Rs.14669 Cholamandalam
How to read this table: If a 25-year-old wants a cover of Rs.1akh, the lowest premium on offer is by Royal Sundaram at Rs.794. These are only base premiums; actual premiums depend on health profile. Taxes extra on premium mentioned above. In case of Cholamandalam, premium for ages 60-70 are applicable only for renewals and dependant parents. Source: Outlook Money 31 May, 2007
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trying to bring some order into the rates for standard procedures and have been taken to court by healthcare providers. The article enclosed in the table 1.7 highlights problems about those covered under health insurance scheme. The health insurance industry has shown a robust growth of 38% during 2006-07 in spite of problems like shortage of hospitals, poverty, lack of co-ordination between hospitals and insurance firms. The other change, which will fuel growth, is the decision by The General Insurance Council of India to cover pre-existing diseases while processing medical insurance claims. The important lessons for the sector are: Industry should adopt different strategies for different population groups one size wont fit all Regulatory bodies should ensure that public subsidies are not drained off by most able to pay theres a need to firewall and protect social priorities Social insurance programs must be financially sound It offers immense potential to mobilize funds, especially from urban mid/ upper income groups Well designed (products and markets) can help sustain high cost government investments
The CII3 study too advises the government to concentrate on improving the dismal condition of the primary and secondary healthcare in the country.
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Health Insurance Industry in India: Prospects and Challenges that perhaps both the insurance company and hospitals are to blame. Bejon Misra, executive director, Consumer VOICE says: Cashless is actually not a cashless scheme as there is always a catch in it. In any sort of settlement of mediclaim, it is the consumer that loses out. In fact, the consumer has already paid for his treatment through the insurance company and if something goes wrong, or if the service is not upto mark, then there is no way he can get his money back. Hospitals claim they dont inflate bills, and in fact, in cashless policies they end up as losers as the payment often gets delayed. Says Dr Dilpreet Brar, chief administrator, Max Super Speciality Hospital: We dont like getting delayed payments and getting embroiled in a dispute with the patient or TPAs. Hence, till the TPAs authorise the treatment in cashless cover, we dont go ahead with it unless it is an emergency. Source: Times of India, Oct 4, 2007 For health insurance to become a reality, the entire health care system in the country, public and private, needs to be defined, organised and operated systematically. It should be a system that functions according to rules and regulations, uses standardized practices and protocols for treatment and car. More importantly it should be a system that is subject to price regulation and is financed through a pooling of both public and private resources kept under watch by an autonomous but accountable authority. Now that the government has a little bit of money, courtesy buoyant tax revenues, it is time to take on the appalling state of healthcare in the country. In India, anyone who can afford it is opting for private delivery via health insurance, third-party administrators and private care. As private hospitals dont feel obliged to deliver emergency care and public hospital emergency facilities are mostly appalling, India can adopt the model of universal state-funded healthcare. In India, publicly delivered healthcare is theoretically available to all and free for the Journal of Marketing Trends Vol.1, No.1 poor. But usable state-provided healthcare is available to a minuscule share of the population- public sector employees like the defense force and railway men. Lack of morbidity data is a problem to price the products in India. For example ICICI Prudential has recently introduced a diabetes product. Diabetes care is a millstone innovation as it marks a paradigm shift in insurance product structure from cost pooling to overall cost reduction. Tata AIG Life has big plans to launch age-wise health products in India. Most of the specialized health care products are structured to provide a coordinated care proposition while providing financial support and some sort of income replacement to meet the cost of health complications. With health becoming more complex these days, the consumer is getting for wider choice treating mediclaim and health insurance plans as complementary. Currently healthcare insurance benefits extend only to those who have the wherewithal to buy the best medical care.
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Health Insurance Industry in India: Prospects and Challenges The poor and the population that survives on the bare minimum are suffering in utter neglect as public health services are not adequate and accessible to all. For health insurance to become a reality the entire healthcare system in the country, public and private needs to be defined organized and operated systematically (autonomy with accountability). The main challenges have been elucidated as under: 1. The insurance market is a highly regulated market and as a result, from the standpoint of manufacturing of products, compensations etc, there is a little differentiation to be seen here. However the area where differentiation occurs is in product innovation, range of products and most importantly service. One of the big threats to the industry is in the areas of market conduct and compliance. This has created a situation where customers are not getting the appropriate type of advice and most importantly disclosure. The so- called mature markets such as the US & UK has seen major law suits from customers related to poor sales practices and lack of disclosure. This has resulted in companies having to pay substantial fines and restitution to policyholders There is tremendous amount of focus on market share and that is a little bit worrisome. In the process of focusing on market share, the industry is running the risk of ignoring some of the quality matrix that are very important for the growth and health of the insurance industry. 6. 4. Companies are now opting for diverse distribution channels, however while dealing with so many outside agencies companies need to ensure that the level of customer service, training of personnel and value systems are of the satisfactory level. Scalability is another case in point. In a country as vast as India where almost 2/3rd of the population lives in rural areas, achieving scale is critical. With the current limitation on FDI, it is very difficult for insurance companies to increase scale in the proportion needed for this market. While all players welcome good sound regulation, there is no purpose served in limiting foreign ownership. This should change as early as possible to facilitate the growth. In the absence of any kind of meaningful social security programme in India, the Govt. should encourage individuals to self insure and one of the ways this can be done is to provide tax incentives. There are several antiquated clauses and sections in the Insurance Act, which have no relevance any more due to changing circumstances. So those need to be rationalized and revised to be able to facilitate the growth of the insurance industry. There has been no hike in the health insurance premium in the past five years and the existing health insurance product has not been modified for 15years. There is a deficiency of products with the lower premium, which will cover people from the lower socio economic strata. Serious diseases like cancer can set people back by as much as Rs.1crore, going by rising medical cost. Hence Institute of Public Enterprise
5.
2.
7.
3.
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Health Insurance Industry in India: Prospects and Challenges there should be cover that needs all the health insurance needs of the population. 8. As far as the prospective entrants are concerned, the greatest challenge is to establish their presence in the minds of the public. To establish the brand equity of a new name in a new field is quite a challenge. The second most important challenge facing a new entrant is that of setting up infrastructure and to reach out to as many areas as possible. With the 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 to prompt and courteous response to customers. The key brand mantra here is become customer friendly. Relationship networking will play a significant role in future. Information Technology is increasingly becoming an important aspect especially in selling insurance. One, it significantly increases delivery and service capability, reduces turnaround time and transaction cost. IT facilitates: Single core system supplemented by peripheral systems to support functions related to agency administration, new business administration, claims etc. Strategic initiatives like imaging & workflow, data warehousing, CRM. Sale of online insurance policies. other challenges facing the industry relate to product innovation, customer service and investments. Unit linked personal insurance products might find greater acceptability with rising customer awareness about customized, personalized and flexible products. Flexible products and new technology will play a crucial role in reducing the cost and therefore, the price of insurance products. Finding the niche markets, having the right product mix through add on benefits and riders, effective branding of products and services and product differentiation from competitors offering will be a few challenges faced by new companies. 11. 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. 12. Issues relating to health insurance for the elderly need special focus, as they are more vulnerable and fall in a higher risk category.
9.
Conclusion
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,
10. The
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Health Insurance Industry in India: Prospects and Challenges such that only the reputed brands stay on in the market and the other non certified ones are sidelined. As the demand for health pushes up its price the opportunities for well-qualified professionals will also increase. In the liberalized insurance market, there will be multiple distribution channels, which will include agents, brokers, corporate intermediaries, bank branch, 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. Since the opening up of the insurance sector to private players in 2000, there has been many significant developments like product innovations, introduction of riders, new channels of distribution i.e. banks, corporate agents, group insurance business etc. References Adam W (2007), Social Health Insurance reexamined Policy Research Working paper; no. WPS 4111 Bhat, Ramesh and Suresh K Babu (2003), Health Insurance and third party administrators: Issues and Challenges IIM Ahmedabad Working Paper Series Hsiao, William and Shaw, R (2007), Social Health Insurance for Developing Nations World Bank publications Peters D H Yazeback, et al. (2002) Better Health Systems for Indias poor; World Bank publications Saadah, F and Knowles, James (2000), The World Bank Strategy for Health Nutrition and Population in the East Asia and Pacific region World Bank publications Outlook Money 31 May, 2007 Issues of Business Standard Issues of Economic Times Institute of Public Enterprise In line with the increase in customer awareness and their changing demands even the products are being tailored to meet their requirements. Private insurance companies have significantly increased the product profile and range in a very short span of time. Products like liability insurance, directors & officers indemnity, warranty extensions, loss of profit policies, errors & omissions for technology companies, accident & health, unit linked products, weather insurance, customized travel insurance policies for students, business travelers etc. are now available in the country. These unique risk mitigation products are enabling Indian corporate and individuals become stronger players in the global marketplace. The majority of India is rural. This market demands tailored and dedicated products. Insurance, for them, is a matter of secure savings for the future.
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