Global Insight Perspective | |
Significance | The implementation of the policy will have a significant impact on the private health insurance industry, which is seeking to expand its services. Despite cross-subsidies, premium payments will be priced on actual costs and risks. |
Implications | The payment shift could see wider acceptance of individual health cover, which is currently overshadowed by corporate/group coverage. |
Outlook | This policy implementation will work as a litmus test for further legislation, such as co-payments and hospital accreditations, which are planned to hit the sector in the next 2-3 years. |
The New Policy Initiative
India's Insurance Regulatory Development Authority (IRDA) has proposed the apparent freeing-up of pricing policies in the non-life insurance segment, where health insurance is currently lumped in with fire and home insurance. The new policy will take effect on 1 January 2007, and has made consumers and private insurance players wary over its exact impact on pricing premiums. The Business Standard reports that the complex cross-subsidies in the current system for the non-life insurance market will play a critical role in establishing new rates. Presently, in terms of premiums, health insurance accounts for less than 1% of the business of life insurance firms, who are allowed to offer limited critical care products along with their life insurance policies. However, general insurance firms can sell standalone health cover, which contributes a slightly better 11-12% to overall premium payments. As the source points out, the complex web of cross-subsidies, mainly involving lucrative fire policies, ensures that corporate or group health cover is often provided at less than cost rates; the new pricing policy is expected to address this disparity. According to CS Rao, chairman of IRDA, the distortions in the fire and health insurance market will be corrected with the implementation of "detariffing".
Private Insurance Firms Market Share in India’s Health Insurance Industry 2004-05 | |
Companies | Market Share |
ICICI Lombard | 39 |
Bajaj Allianz General | 23.1 |
IFFCO Tokio | 9.9 |
Royal Sundaram | 9.3 |
Tata AIG General | 8.8 |
Cholamandalam | 6.6 |
Reliance General | 2.6 |
HDFC Chubb | 0.6 |
Source: IRDA Journal (quoted by watsonwyatt.com) | |
The Indian health insurance industry is dominated by four public sector companies, including General Insurance of India, while the rest of the market comprises eight private firms, which are mostly alliances and joint ventures (JV) set up with international insurance firms. The industry is expected to expand over the next three years, as a host of legislation is implemented. The IRDA has already set the policy revamp in motion by raising foreign direct investment (FDI) limits to a majority 51% in standalone health insurance companies, and the minimum capital requirement to 250 million rupees (US$5.4 million). The interest in the sector mainly lies in government propagation of private health insurance, and the increasing earning power of the middle class, which is expected to account for a bulk of the market. During 2004/05, health premiums worth a total of US$430 million were collected.
Outlook and Implications
The "detariffing" will not automatically mean a dip in prices. Although some quarters of the industry believe that the move could lead to a rise in prices, the effects of the policy will only become fully evident in mid-2007. In effect, there will be a streamlining of prices, with the exact costs and risks expected to be assessed in actual terms, rather than in relation to the other cross-subsidies previously employed by health insurers.
The medical insurance industry is fraught with disproportionalities, with medical insurance receiving the least focus from life and general insurance companies; the claims ratio is found to be too high, and less commercially viable as a result. The public sector companies are slowly coming under increasing pressure from new private players, who—despite being restricted to offer only limited services—have been providing better and more novel services to the insured public. However, the system's fundamental deficiencies are—unsurprisingly—a lack of transparency and regulation in the health services sector, which have led many players to shy away from entering the segment. Health insurers currently have direct alliances with healthcare delivery institutions, with the latter raising their price levels for patients with private insurance. Patients also tend to take up the most expensive services offered. Meanwhile, the government is expected to resolve some of these issues by initiating its hospital accreditation system, while the regulator is to announce a co-payment option, which would allow insurers to share the costs with patients.
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