88
23
The Institute of Chartered Accountants of India, Principle and practice of general insurance,
2008.
89
When, talking about the history of health insurance in India, one will find that health
insurance is not of recent origin. One can argue that the concept of health insurance is there
since the beginning of the mankind. In the Vedic literature its stated that people use to
sacrifice animals to Gods and in return expected good health. It is interesting to link this
activity with that of the current concept of health insurance i.e. to pay the premium (animal
sacrifice) to safeguard from ill health. However, in such situation there was no transfer of
risk in contractual terms. The concern for loss resulting from accident and illness can be
traced to ancient civilizations. In fact, one of the earliest forms of health insurance may have
been based on the ancient custom of paying the doctor while in good health and
discontinuing payment during periods of illness. The development of health insurance in
existing form in India is based on pattern followed in Europe and America. Also, health
Insurance or medical insurance schemes had developed in India due to industrial relations
problems between the employer and the employees. The Corporate Houses used to offer core
and non-core benefits to the employees. The insurance policies were granted to large
Corporate Houses purely on an accommodation basis. The cover usually offered to the
employees was in the nature of hospitalization and domiciliary treatment for dental and nonsurgical eye treatment.
Before examining the trends in the Indian health insurance industry, the global insurance
market was looked into. The market size of the global insurance industry which is measured
in terms of premium as a percent of global GDP was first studied, followed by studying the
data on insurance density and insurance penetration. This section is then followed by the
overview of the Indian healthcare system.
4.1.1 Market Share & Segmentation
The market size of the global insurance industry measured in terms of total premium stands
USD 4061bn in year 2007. The life insurance industry accounted for USD 2393bn, Non-life
accounted for USD 1668bn (Table 4.1). In the year 2007 the life insurance industry captures
59 percent of the total global insurance premium and the remaining 41 percent is captured by
the non-life insurance industry. The global premium as a percent of global GDP stands 7.48
90
percent. The total direct premium growth is 3.3 percent. The premium growth in non-life
sector is much less than that of the life insurance sector.
Table 4.1: Global insurance industry overview (market size), 2007
Global Insurance Industry
Amount
Units
Year
Source
4061
Billion US$
2007
Swiss Re
7.48
Percent
2007
IMF
2393
Billion US$
2007
Swiss Re
1668
Billion US$
2007
Swiss Re
3.3
Percent
2007
Swiss Re
5.4
Percent
2007
Swiss Re
0.7
Percent
2007
Swiss Re
24
Insurance penetration is measured in terms of premium as a percent of GDP and insurance density
is measured in terms of per capita premium.
91
2009
2008
2007
2006
2005
2004
2003
2002
2001
2.9
3.2
3.09
3.85
3.57
3.46
3.45
Brazil
1.5
1.6
1.6
1.6
1.68
1.62
1.68
1.74
1.78
France
3.1
3.1
3.13
3.14
3.16
2.97
2.85
Germany
3.7
3.5
3.6
3.6
3.73
3.86
3.82
3.7
3.59
Russia
2.5
2.3
2.4
2.3
2.15
2.22
2.13
1.81
1.51
South Africa
2.9
2.9
2.8
3.03
2.95
2.92
2.86
2.78
Switzerland
4.5
4.4
4.6
4.9
4.99
5.02
5.02
5.22
4.76
2.9
3.4
3.55
3.68
4.75
4.56
3.45
4.5
4.6
4.7
4.8
5.01
5.14
5.23
4.98
4.57
Australia
United Kingdom
United States
Asian Countries
Bangladesh
0.2
0.2
0.2
0.2
0.2
0.2
0.2
0.17
0.17
Hong Kong
1.4
1.3
1.2
1.2
1.29
1.39
1.5
1.45
1.21
India#
0.6
0.6
0.6
0.6
0.61
0.64
0.62
0.67
0.56
Japan
2.1
2.2
2.1
2.2
2.22
2.25
2.2
2.22
2.22
Malaysia
1.6
1.5
1.5
1.7
1.82
1.88
2.06
1.97
1.8
Pakistan
0.4
0.4
0.4
0.5
0.4
0.43
0.38
0.38
0.38
PR China
1.1
1.1
0.92
1.05
1.03
0.95
0.86
Singapore
1.7
1.6
1.5
1.1
1.48
1.48
1.5
1.43
1.18
South Korea
3.9
3.7
3.6
3.2
2.98
2.77
2.86
3.38
3.38
Sri Lanka
0.9
0.9
0.9
0.9
0.84
0.77
0.75
0.75
0.67
2.9
2.8
2.9
2.93
3.07
3.03
2.81
2.59
1.6
1.5
1.5
1.6
1.62
1.58
1.2
1.15
1.08
2.9
3.1
3.18
3.44
3.47
3.38
3.15
Taiwan
Thailand
World
* Insurance penetration is measured as ratio of premium (in US Dollars) to GDP (in US Dollars)
# data relates to financial year
Source: Swiss Re, Sigma various volumes
92
(In US Dollars)
2009
2008
2007
2006
2005
2004
2003
2002
2001
1307.9
1348.6
1326.1
1191.9
1203.2
1186.3
912.1
695.5
628
Brazil
123.8
129.1
106.9
88.4
72.1
55.2
46.8
45
53.2
France
1289.4
1339.2
1219.3
1152.9
1093.9
1057.7
930.4
714.7
630.6
Germany
1518.7
1572.7
1427.9
1300.7
1268.4
1265.3
1120.8
891
809.9
Russia
276.4
268.1
203.3
146.9
116.5
89.6
64.3
43.5
32.6
South Africa
163.9
163.6
159.5
160.2
156.2
141
107.4
64.8
69.1
Switzerland
2852.1
2827.9
2581.7
2450.1
2480.3
2441.3
2228.5
1822.7
1627.1
United Kingdom
1051.2
1275.7
1383.2
1327.1
1311.9
1318
1441.4
1199.7
825.9
United States
2107.3
2177.4
2164.4
2134.2
2122
2062.6
1980.2
1799
1664
Australia
Asian Countries
Bangladesh
1.3
1.1
0.9
0.8
0.8
0.8
0.7
0.6
0.6
Hong Kong
417.5
380.8
341.3
331.6
331.7
332.9
348.7
345.1
295.5
6.7
6.2
6.2
5.2
4.4
3.5
2.4
840.4
829.2
736
760.4
790.4
830.8
768
714.7
701.1
Malaysia
115
119.5
110.6
103
95.3
89.2
87.2
79.3
68.8
Pakistan
3.6
3.9
3.6
2.8
2.2
1.8
1.7
1.5
PR China
40
33.7
25.5
19.4
15.8
12.9
11.2
9.5
7.8
Singapore
645.6
630
531.2
341.2
392
365.4
320.3
300.6
245.8
South Korea
709.7
621
727.3
591.2
495.5
412.5
369.4
337.9
296.7
17.7
19.3
14.7
12.8
9.4
7.9
7.2
6.1
5.4
Taiwan
494.8
499.6
462.3
450.3
446.4
414.4
383.2
354.1
327.6
Thailand
62.7
64.9
58.9
50
44.4
41.3
27.6
23.1
19.8
253.9
264.2
249.6
224.2
219
220
202.5
175.6
158.3
India#
Japan
Sri Lanka
World
93
50
100
150
200
250
Emerging Markets
300
111
38
India
24
5.8
5.0
Russia
4.0
South Africa
3.4
3.3
Mexico
3.1
2.0
Indonesia
2.0
21
Non-life insurance
Share of emerging
markets
China
33,810
17.00 percent
Russia
28,973
14.60 percent
Brazil
20,501
10.30 percent
Mexico
9,763
4.90 percent
South Africa
8,345
4.20 percent
Poland
7,677
3.90 percent
India
7,402
3.70 percent
Turkey
7,201
3.60 percent
Venezuela
6,977
3.50 percent
Argentina
4,471
2.20 percent
129,619
68.00 percent
Top 10
4.2
The trends in the health insurance market are governed by multiple factors, one of which is
the nature and type of healthcare system existing in the given geography. For example, if the
healthcare system promotes out of pocket expenditures then there would be a large
percentage of population which would depend on private healthcare providers for their
medical needs. This will lead to higher demands for the private care and thus the cost of care
would increase must faster. A point will come when the healthcare cost would be so high
that it would become difficult for an average individual to afford health care cost. It will be
then that the health insurance companies would come into play and would try to apply the
principle of risk pooling and principle of large numbers. On the other side they would also
make efforts to bring down the cost of healthcare expenditure by contracting with healthcare
providers for better rates and also by monitoring the cost closely. Thus, it is important to
study the overview of the Indian healthcare system in context of the trends in the Indian
health insurance industry.
4.2.1 Determinants of Health
Before looking into the Indian healthcare system lets briefly examine the determinants of
health. As per World Health Organization a child born in a developing country is ten to
fifteen times more likely to die before reaching his first birthday than a child born in a
developed country. Similarly, the individual may expect to live up to fifty years compared to
eighty years in some developed countries. There has been this observation that during World
War II fighting in the same area in similar conditions more European soldiers developed
jaundice (Hepatitis A) as compared to Indian soldiers. So what determines whether a person
will fall ill or die? It is just being born or living in a particular geographical area or more
than that? Obviously its more than that. Health is a multifactorial amalgamation of various
determinants. Some of the important determinants of health are examined and then linked
with the cover extended under health insurance policy. This determinant includes genetic,
environmental, socio-cultural, economic, health services, political system and technological
advancements. A brief description of these determinants is presented below.
95
4.2.1.1 Genetic- The positive health advocated by WHO implies that a person should be able
to express as completely as possible the potentialities of his genetic heritage. The
genetic makeup of each individual is unique and cannot be altered after conception.
The genetic constitution determines the health status to a great extent. It is may be
due to this reason that there are specific exclusions with respect to congenital illness
(both internal and external) in most of the health insurance policy. Now, the question
arises if the health insurance firms should be allowed to exclude any genetic
conditions in a person or not? The answer is not an easy one and one need to examine
this on a case to case basis and in lack of any specific regulations the decision
becomes more difficult.
4.2.1.2 Environmental- Environment may be internal or external. Internal environment is
dealt with by internal medicine. The external environment involves all that is external
to the individual. The external environment factors range from housing, water supply,
family structure and occupation. In health insurance the internal environment is
covered quite fairly. The only clause is that of hospitalization i.e. the insured need to
be hospitalized for a minimum of twenty four hours. However, there are few
exceptions where day care surgeries are covered due to advancement in medical
technology.
4.2.1.3 Socio-cultural- Social interactions with parents, peer groups, friends and siblings are
through school and mass media affects the life-style of individuals. Personal habits
like smoking, alcohol intake, drug abuse are developed through social interactions.
Obesity, drug addictions are few examples of medical problems resulting from social
causes. Life style can have a positive effect on health. Reduction of smoking,
avoiding red meat, regular exercise all contribute to a healthy life style. In health
insurance underwriting all these factors are kept in mind to measure the potential risk
of health and based on the life style of the individual necessary discounts or loading
is done in the base premium. Now a days one can find that most of the health insurer
are focusing on the lifestyle of the customers and trying to bring positive health
outcomes by extending memberships to health clubs and exercise centers.
96
Thus we have seen that there are multiple determinants on ones health and how each one of
them is linked with the health insurance industry. Now, the overview of the Indian health
care system followed by healthcare financing is presented.
4.2.2 Trends in Indian Health Care System
The health care system in India is characterized by multiple systems of medicine, mixed
ownership patterns and different kinds of delivery structures.
Table 4.5: Healthcare in India: Health Indicators (1951 - 2008)
Primary Health Centres (PHCs), Sub-Centres, and health posts. Also included are public
facilities for selected occupational groups like organized work force (ESI), defence,
government employees (CGHS), railways, post and telegraph and mines among others. The
private sector (for profit and not for profit) is the dominant sector with 50 percent of people
seeking indoor care and around 60 to 70 percent of those seeking ambulatory care (or
outpatient care) from private health facilities. While India has made significant gains in
terms of health indicators - demographic, infrastructural and epidemiological (see Table 4.5)
it continues to grapple with newer challenges.
The country is now in the midst of a dual disease burden of communicable and noncommunicable diseases. This is coupled with spiraling health costs, high financial burden on
the poor and erosion in their incomes. Around 24 percent of all people hospitalized in India
in a single year fall below the poverty line due to hospitalization. An analysis of financing of
hospitalization shows that large proportion of people; especially those in the bottom four
income quintiles borrow money or sell assets to pay for hospitalization25. This situation
exists in a scenario where health care is financed through general tax revenue, community
financing, out of pocket payment and social and private health insurance schemes. India
spends about 4.9 percent of GDP on health26.The total health expenditure in India is around
5 percent of GDP, with breakdown of public expenditure (0.9 percent); private expenditure
(4.0 percent). The private expenditure can be further classified as out-of-pocket (OOP)
expenditure (3.6 percent) and employees/community financing (0.4 percent). It is evident
that public health investment has been comparatively low. In fact as a percentage of GDP it
has declined from 1.3 percent in 1990 to 0.9 percent in 2010. Furthermore, the central
budgetary allocation for health (as a percentage of the total Central budget) has been
stagnant at 1.3 percent while in the states it has declined from 7.0 percent to 5.5 percent. In
light of the fiscal crisis facing the government at both central and state levels, in the form of
shrinking public health budgets, escalating health care costs coupled with demand for healthcare services, and lack of easy access of people from the low-income group to quality health
25
26
99
care, health insurance is emerging as an alternative mechanism for financing of health care in
India.
A population pyramid, also called an age structure diagram, is a graphical illustration that
shows the distribution of various age groups in a human population (typically that of a
country or region of the world), which ideally forms the shape of a pyramid when the region
is healthy. A great deal of information about the population broken down by age and sex can
be read from a population pyramid, and this can shed light on the extent of development and
other aspects of the population. A population pyramid also tells how many people of each
age range live in the area. There tends to be more females than males in the older age groups,
due to females' longer life expectancy. Figure 4.2, 4.3 and 4.4 depicts the population
pyramid by broad age-group, projected population pyramid 2001 and 2026 of India. In India
the demographic transition27 has been relatively slow but steady. As a result the country was
able to avoid adverse effects of too rapid changes in the number and age structure of the
population on social and economic development. In the period between1996 to 2016,
population in the age group greater than 60 yrs will increase from 62.3 to 112.9 million28.
Figure 4.2: Percentage of population by broad age-groups: India 2001-2026
27
Demographic transition is the transition from a stable population with high mortality and fertility to
a stable population with low mortality and fertility. During the transition population growth and
changes in the age structure of the population are inevitable.
28
Source: Technical Group on Population Projections, Registrar General of India (RGI) 1996
100
The Primary Health Care Infrastructure has been developed as a three tier system with Sub
Centre, PHC and CHC being the three pillars of Primary Health Care System. Progress of
Sub Centres, which is the most peripheral contact point between the Primary Health Care
101
System and the community, is a prerequisite for the overall progress of the entire system. A
look at the number of Sub Centres functioning over the years reveal that at the end of the
Sixth Plan (1981-85) there were 84,376 Sub Centres. The figure rose to 1, 30,165 at the end
of Seventh Plan (1985-90) and to 1, 45,272 at the end of Tenth Plan (2002-2007). As on
March, 2008 there were 1, 46,036 Sub Centres functioning in the country.
Figure 4.5: Progress of Primary Health Care System (PHCs)
policy purchased and the cost and range of protection under that policy. Health insurance
could be either a personal scheme or a group scheme sponsored by an employer. Unlike life
insurance where there are only two parties i.e. the insured and the insurer, in the case of
health insurance there are three parties namely the insured, the insurer and the provider
(network hospital). There is also TPA which acts as an extended arm of the insurance
company and helps in claim processing, managing the hospital networks and at times helping
in enrollment of customers.
The generic features of insurance are equally applicable to the concept of health insurance.
Insurance primarily rests on the principle of pooling of risk associated with the same cause
i.e. health to share losses on some equitable basis. Insurance whether it is health or any
other line of insurance, is a concept of sharing financial burden. Insurance follows a simple
statistical principle of diversity or pooling of resources and sharing of risk. This means
that from out of a given population that is Insured, those needing the financial support by
way of a claim for loss is very small. Especially in the case of Health Insurance, it is less
than 5 percent of the total population covered in its current form. This in effect means that
out of the amount contributed by 100percent, financial claims are paid to only 5 percent.
This theory of diversity is an important factor in a country like India.
Thus, health insurance in a narrow sense would be an individual or group purchasing health
care coverage in advance by paying a fee called premium. In its broader sense, it would be
any arrangement that helps to defer, delay, reduce or altogether avoid payment for health
care incurred by individuals and households.
Taking into account various developments in and outside the insurance sector, showcasing
the developments in the field of insurance, including developments specific to health
insurance, with brief summaries are given in chronological order (see Table 4.6).
104
YEAR
1912
1923
1938
Insurance Act, 1938 passed, recognizing two categories, i.e. Life and nonlife (general) insurance. Led to an insurance wing being set-up, attached to
the Ministry of Finance.
1948
1954
1956
1959
1972
1986
1999
2000
W.e.f. Dec 2000, GIC became the National Re-insurer, its earlier role of coordination between the four subsidiaries taken over by a new body, General
Insurance (Public Sector Companies) Association (GIPSA).
105
YEAR
2001
2002
2003
IRDA set up a National Health Insurance Working Group. With Sub group
on data, standalone health insurer and product innovation. This Committee
was formed with the objective of identifying the existing problems in the
health insurance industry and to make recommendations to enable and
encourage a large number of companies to participate in the growth of
insurance in health financing.
2004
2005
2006
2007
106
2008
2009
2010
2011
General insurance as a whole, developed with the industrial revolution in the West and with
the consequent growth of seafaring trade and commerce in the seventh century. In India too,
evidence of insurance in some form can be traced as early as from the Aryan period. The
British and some of the other foreign insurance companies through their agencies transacted
insurance business in India. The first general insurance company in India was the Triton
Insurance company Ltd., established in Calcutta in 1850 AD, with the British holding major
107
share. The first general insurance company by Indian promoters was the Indian Mercantile
Insurance company Ltd. started in Bombay in 1906-07.
Following the First World War, several foreign insurance companies started insurance
business in India, capturing about 40 percent of the insurance market in India at the time of
Independence. It was in the year 1912 that the insurance Act was passed which was then
revised in the year 1932. This was under the revised Act that the Life and Non-life categories
were recognized. In India the general insurance is also known as Non-life. The health
insurance was a part of the non-life business; however, there was no clear demarcation then.
Even today both the life and the non-life companies are allowed to have health insurance
products.
The year 1940-1960 has witnessed the launch of the ESI and the CGHS schemes. These
schemes had the elements of health insurance concepts but were not placed with any
insurer29.
In the year 1971, the government by an ordinance nationalized the general insurance
business, under the General insurance Nationalization Act, 1972 to ensure orderly and
healthy growth of the business. The then existing 107 companies were brought under the
aegis of GIC of India and were merged with the four public general insurance players
namely the National insurance company, the Oriental insurance company, the United
insurance company and the New India assurance company. These four public insurance
companies were distributed geographically and had their head offices at Kolkata, New-Delhi,
Chennai and Mumbai respectively. The primary reason for such division was to have wider
spread with regional focus. It was expected that the subsidiary companies would provide
effective competition to each other with the support from GIC. The GIC facilitated
coordination, competition and laid down standards for market conduct, customer service and
development of the market.
29
The current study excludes these two schemes as it would be a separate independent research area
in itself.
108
In 1973 the general insurance industry was nationalized and with the liberalization of the
market, the four public players became autonomous and were directly answerable to the
Ministry of Finance as their owner. The General Insurance Corporation of India was
designated as the Indian Re-insurer.
In 1981, the Apex Body of Public Sector Insurance Companies i.e. GIC designed a limited
cover for individuals and families for covering their hospitalization needs. This was replaced
by a mediclaim policy in the year 1986 under a market agreement to provide insurance
benefits to individuals and groups under a group mediclaim policy. The then Mediclaim
Insurance Policy provided reimbursement of medical expenses for hospitalization and
domiciliary hospitalization, but it does not cover OPD treatment. The sum that is assured
under this policy varies from Rs.15, 000 to Rs.5 lac. It was available to the people from the
age of 5 years to the age of 80 years. The children between the age of 3 months and 5 years
were covered with some additional premium. The minimum premium was Rs. 213 per
annum for the lowest sum assured, that is, Rs. 15,000 (for people below 35 years of age).
The highest premium was Rs. 17,156 per annum for people in the age group between 76
years and 80 years for the maximum sum assured, that is, up to Rs. 5 lac. There was a family
discount of 10 percent and some cumulative bonus if the previous year had been claim-free.
The scheme so introduced was modified in 1991 and 1996 in the light of experience and
suggestions received from the insuring public and medical fraternity. The benefit that was
provided under the mediclaim policy was on reimbursement basis only. Reimbursement of
the expenses was allowed by insurance companies on production of the required bills given
by the hospitals where the treatment was taken. This created the need for cashless payment
facility at hospitals, as it was difficult for an insured person to arrange for funds at the time
of admission in the hospital. Requests were made to GIC for introducing a system whereby,
payment could be made directly by the insurance company to the hospital where the
treatment was taken. Insurance companies entered into tie up with hospitals to provide such
benefit whereby an insured person could collect a certificate of his eligibility from an
insurance company and produce the same to the hospital for taking the treatment. The
settlement of the claims was directly made with the hospitals. This tie up with hospitals
failed in course of time in view of some reported cases wherein the hospital managed to get
109
claims reimbursement of such insured persons who took treatment for pre-existing
ailments30.
As a part of the financial reforms in the year 1993 the Government of India appointed a
committee know as Malhotra Committee on reforms in the insurance sector. This committee
rightly recommended the opening up of insurance sector to competition stating that
introduction of competition will result in better customer service and new products. As the
insurance market was open in the year 2001, there were nine new entrants. Up to June 2011
there were 48 insurance companies licensed by IRDA and doing business in India (24 life
insurance companies and 24 non-life insurance companies and within non-life, there were
three specialist health insurance companies).
4.4 Major players and Performance
Figure 4.7: Growth in health insurance premium (2002-2008)
Source: Rohit Kumar (2011). Health Insurance: The Need of the Hour. Jaipur: Raj
Publication House.
The Indian health insurance industry was worth Rs 5,125 crores with a compounded annual
growth rate of approximately 37 percent between 2002 and 2008. The health insurance
industry is one of the fastest growing segments among other non-life insurance segments.
11th report of the committee on public undertaking, Health Insurance- A horizontal study, 200506, Ministry of Finance, Govt. of India.
30
110
The Indian health insurance industry today is worth Rs 60,497 crores with a compounded
annual growth rate of approximately 42.3 percent expected between 2008 and 2015. Market
penetration will be three folds higher in 2015 (Figure 4.7).
In non-life insurance more than 50 percent of the market share was captured by the public
sector insurance companies in the year 2008-09. New India top the list and had a market
share of 18.15 percent, National Insurance company had 14.1 percent, United India 14.09
percent followed by Oriental Insurance with a market share of 13.06 percent. In the private
players ICICI Lombard top the list with 11.21 percent market share followed by Bajaj
Allianz and reliance General Insurance Company with 11.21 percent and 8.63 percent of
market share respectively (refer to Figure 4.8).
Figure 4.8: Market Share: Non-Life Insurance (2008-09)
Source: Rohit Kumar (2011). Health Insurance: The Need of the Hour. Jaipur: Raj
Publication House.
Within the non-life sector, motor business does the maximum business in terms of premium.
After motor, health insurance business occupies the second position, followed b fire and
111
marine business. Across all these segments from 2007-08 to 2008-09 health insurance has
seen the maximum growth (refer Figure 4.9).
Figure 4.9: Non-Life insurance company- segment wise premium (2007and 2009)
Source: Rohit Kumar (2011). Health Insurance: The Need of the Hour. Jaipur: Raj
Publication House.
Source: Rohit Kumar, K. Rangarajan, and Nagarajan Ranganathan (2011). Health Insurance
in IndiaA Study of Providers Perceptions in Delhi & the NCR, Journal of Health
Management 13: 259-277.
112
Again in health insurance business the public sector insurance companies had more than 50
percent of the market share, measured in terms of earned premium (year 2008-09). However,
there was a difference in the ranking of public and private sector companies. The third rank
was occupied by ICICI Lombard. One of the interesting observations was that Star Health
insurance company (the first standalone health insurance company in India) had captured 11
percent of the overall market share (Figure 4.10). Thus, one can argue that standalone health
insurance companies are going to increase the level of competition within the health
insurance market and are here to stay.
On examining the latest data on market share for the period April-May 2011 it was observed
that ICIC Lombard had 29 percent of the market share, Star Health had 23 percent of the
market share followed by HDFC Ergo (9 percent), Royal Subdram (6 percent), Reliance
General (5 percent), IFFICO Tokio and Apollo Munich (4 percent each). Here, it is
interesting to note that the three standalone insurance companies captured some 28 percent
of the market share within the private insurance space (Figure 4.11). The customer segment
wise premium data is currently not available. However, the regulator had asked the insurers
and TPAs to start providing the health data on the basis of customer segment i.e retail,
corporate and mass business.
In the area of retail health product it was found that different levels of cover are being
offered by different insurance companies. In most of the cases the pre-existing disease was
not covered before fourth year from policy inception date (see table 4.7). It was also
observed that there were co-payment and sub-limit options being built-in in the product. This
may be primarily because to reduce the claim paid cost and also to offer retail health
insurance policy at a lower price.
The incurred claim ratio for both private and public sector companies for three consecutive
years i.e. 2006-07 to 2008-09 is presented in table 4.8. It was observed that the claim ratio
for public sector insurance companies was 20 to 15 percent higher than that of the private
players. One of the possible reasons for this difference could be because the public sector
insurance companies might be offering the health insurance product at a lower price to
corporate houses. In other words the public sector insurance companies might be subsidizing
the health insurance premium in lieu of premium received on other insurance product like
fire and marine business.
113
Figure 4.11: Market Share (Health Insurance) - Private Players (April -May -2011)
IL
Bajaj
Chola
OIC
N t n'l
St ar
30
60
Sub-limits
Two Year
SI
Entry Age
60
90
30
90
30
60
30
7% of hosp bill
60 max 7k
No
5th
5th
No
NA
4th
2 yr
2 yr
1yr/ 2yr
30 day
Named ailments 2 yrs
Co-pay
60
2 yrs
1 yr
10% copay in nonWe pay
n/w
full claims hospitals
Hernia/pile
Only in
s/cataratc
case of
etc 10% of
cataract
SI
10% for
Diab/Hyp &
25% if both.
Room
Rent 1%
of SI, ICU
2% of SI
Room Rent
2% of SI max
4k
2L-4L
1L-10L
60
1L-10L
1L-5L
1L-5L
55 55/69 (for dependant
60parents)
60 1L-5L
Source: Authors compilation based on the study of the retails products (2009-10) offered by
selected insurance companies.
114
2008-09
2007-08
2006-07
PUBLIC
116.60
112.36
157.79
NEW INDIA
107.41
89.88
212.81
ORIENTAL
136.96
123.77
132.51
NATIONAL
111.27
118.01
131.47
UNITED
121.27
135.36
160.05
PRIVATE
85.33
94.81
103.42
ROYAL SUNDARAM
43.57
44.78
46.99
BAJAJ ALLIANZ
78.02
85.19
78.64
TATA AIG
46.71
74.93
61.69
RELIANCE
91.74
112.14
113.01
IFFCO TOKIO
122.23
121.14
152.89
ICICI LOMBARD
86.07
98.79
118.70
CHOLAMANDALAM
108.99
93.03
79.51
HDFC CHUBB
100.5
142.46
87.10
FUTURE GENERALI
141.12
Na
Na
GRAND TOTAL
105.95
106.99
141.02
115
Governance and risk management: The record losses from Hurricanes Katrina,
Wilma and Rita have once again highlighted the scale of the risks faced by insurers
in an increasingly complex and uncertain financial, geopolitical and climatic
environment. Model outputs are clearly critical in monitoring and controlling
aggregations and concentrations of risk. However, the largely unexpected gravity of
the losses and resulting pressure on reinsurance programmes have once again
underlined the importance of quality data, effective validation and calibration of
model outputs and, not least, the sense check of underwriting experience and
intuition. The development of Enterprise Risk Management (ERM)31 capabilities can
help to protect insurers from losses, earnings surprises and name risk and provide a
platform for strengthening governance, decision-making and regulatory compliance.
However, a recent study conducted by PricewaterhouseCoopers32, revealed that many
insurers are finding it difficult to make headway in implementing and embedding
ERM in the face of continuing data, systems and governance challenges. However,
the study also found many examples of how insightful and effective management are
helping to overcome these technical and organizational hurdles and bring greater
clarity to insurers ERM missions.
4.5.2
31
ERM programmes can help to safeguard businesses against losses, earnings surprises and name
risk. This includes strengthening the management of credit, market and other financial risks, along
with more effective controls over less quantifiable, though equally hazardous, non-financial risks
such as fraud, systems failure and breaches in compliance with regulatory and corporate guidelines
32
116
cross sell by strengthening their relationship with agents and brokers and by
spreading their business in emerging markets like India and China.
4.5.3
Managing the complexities of compliance: In almost all the countries of the world the
insurance market is highly regulated. The degree may vary. Growing regulatory
requirements are bringing increased scrutiny to governance, information security,
monitoring and reporting process in insurance companies. Much of this change is
taking place in Europe by the advent of solvency II33 and in the United States with
the upcoming NIAC revised Model Audit Rule (MAR)34. The effect of these
regulation are likely to be felt globally, as the evolving regulatory picture set the
canvas for industry best practices. There is an opportunity to use the regulatory
requirements as the catalyst to improve the overall management and build confidence
in the public eye.
4.5.4
Human Capital: Many insurers are facing mounting skills shortages. Yet, investment
in recruitment, training and career development often less than other financial
sectors. The primary focus can often be short-term demands rather than securing the
talent companies need to meet longer term strategic objectives. The effect of
demographic shifts, evolving aspirations and accelerating globalization are set to
transform the shape of the global labour market and could make it even harder for
insurers to attract and retain good people. In this competitive labour market,
33
Solvency II is the updated set of regulatory requirements for insurance firms that operate in the
European Union. It is based on economic principles for the measurement of assets and liabilities. It is
also a risk-based system as risk is measured on consistent principles and capital requirements depend
directly on this.
34
The National Association of Insurance Commissioners (NAIC) Annual Financial Reporting Model
Regulation, also known as the Model Audit Rule (MAR), requires that private insurance companies
with direct premiums written and assumed in excess of $500 million per year adopt corporate
governance and reporting standards. The Model Audit Rule, originally issued to drive consistency
across insurance regulators, was modified in 2006 and will take effect for the year ending 2010. The
new modifications within the Model Audit Rule are very similar to those of the Sarbanes-Oxley Act
of 2002 (SOX or Sarbanes-Oxley), which was issued in response to several high-profile fraudulent
financial reporting scandals at large public corporations. It was these scandals that caused there to be
a much greater emphasis placed on the accuracy of companies financial statements and the method
in which they were assembled.
117
Leveraging analytical tools: To gain deeper insight and better operation the insurance
companies have used predictive analytics to support underwriting efforts for several
years. Todays advanced analytical tools allow insurers to improve decision making
by moving beyond subjective judgment. These tools not only help them manage
claims, reach and retain customer and strengthen their distribution network but also
improve underwriting capability. The greatest potential lies in controlling both hard
& soft fraud, which cost the industry some $80 billion a year35 (see Figure 4.12).
Health insurance fraud contributes maximum amounting to USD 54bn followed by
Auto, Business & commercials and Homeowner.
35
Maria Woehr, Uncovering crooked claims, Insurance & Technology, July 1, 2006.
118
Given the above opportunities and challenges the top executives of the insurance companies
are quite optimistic about the future growth of insurance industry.
In April 2009, the Economist Intelligence Unit surveyed, on behalf of KPMG International,
315 global insurance executives from around the world. The respondents were split among
life insurance (42 percent), non-life insurance (49 percent) and reinsurance (9 percent)
companies or divisions. The Key findings of the survey were as under:
i.
Over half of respondents see positive prospects for growth in the next 12 months.
ii.
iii.
There is limited appetite for incremental spend, with almost half the respondents expecting
to improve performance without increasing resources.
The global insurance industry is bound to contribute towards the growth of world economy
and will keep evolving in the way the other financial markets have done in the past. The
study of the global insurance market reveals that there is a level of saturation reached in the
industrialized countries and the focus has moved to the emerging markets like China and
India.
As we have seen earlier, the insurance industry (both life and general) has gone through the
complete cycle from being a free market, to nationalization and then again opened for private
players. The common thread connecting this cycle is the legal framework, which has also
undergone a sea change. However, The Insurance Act of 1938 along with various
amendments over the years continues till date to be the definitive piece of legislation on
insurance and controls both life insurance and general insurance.
The general insurance business was nationalized with effect from January 1, 1973, through
the introduction of the General Insurance Business (Nationalisation) Act, 1972 (GIC Act).
Under the provisions of the GIC Act, the shares of the existing Indian general insurance
companies and undertakings of other existing insurers were transferred to the GIC to secure
the development of the general insurance business in India and for t he regulation and control
of such business. The GIC was established by the Central Government in accordance with
the provisions of the Companies Act, 1956 (Companies Act) in November 1972 and it
commenced business on January 1, 1973. Prior to 1973, there were a hundred and seven
companies, including foreign companies, offering general insurance in India. These
companies were amalgamated and grouped into four subsidiary companies of GIC viz. the
National Insurance Company Ltd. (National Co.), the New India Assurance Company Ltd.
(New India Co.), the Oriental Insurance Company Ltd. (Oriental Co.), and the United
India Assurance Company Ltd. (United Co.). GIC undertakes mainly re-insurance
business apart from aviation insurance. The bulk of the general insurance business of fire,
marine, motor and miscellaneous insurance business is under taken by the four subsidiaries.
It was in the year 1993, the Government of India set up an eight-member committee chaired
by Mr. R. N. Malhotra (commonly called as the Malhotra Committee), a former Governor of
India's apex bank, the Reserve Bank of India to review the prevailing structure of regulation
and supervision of the insurance sector and to make recommendations for strengthening and
modernizing the regulatory system. The Committee submitted its report to the Indian
Government in January 1994. Two of the key recommendations of the Committee included
the privatization of the insurance sector by permit ting the entry of private players to enter
the business of life and general insurance and the establishment of an Insurance Regulatory
Authority.
120
The Indian Parliament passed the Insurance Regulator y and Development Act,
1999 (IRDA Act) on December 2, 1999 with the aim to provide for the establishment of
an Authority, to protect t he interests of the policy holders, to regulate, promote and ensure
orderly growth of the insurance industry and to amend the Insurance Act, 1938, the Life
Insurance Corporation Act, 1956 and the General Insurance Business (Nationalization) Act,
1972.
IRDA has been entrusted with the duty to regulate, promote and ensure the orderly growth of
the insurance and re-insurance business in India. In addition to this, it has been conferred
with numerous powers and functions which include prescribing regulations on the
investments of funds by insurance companies, regulating maintenance of the margin of
solvency, adjudication of disputes between insurers and intermediaries, supervising the
functioning of the Tariff Advisory Committee, specifying the percentage of premium income
of the insurer t o finance schemes for promoting and regulating professional organizations
and specifying the percentage of life insurance business and general insurance business to be
undertaken by the insurer in the rural or social sector.
The broad regulatory framework for health insurance business in India includes: Deposits;
Investments; Valuation of Assets Liabilities and Solvency Margins; Submission of Returns;
Actuary; Insurance Advertisements; Obligations to the Rural and Social Sector; Assignment
and Nomination; Foreign Exchange laws; Taxation laws and Stamp Duty.
In the month of February 2011, IRDA had rolled out the regulation on portability of health
insurance to safeguard the interest of the policyholders. The gist of guidelines is given
below:
All insurers issuing health insurance policies shall allow for credit gained by the
insured for pre existing conditions in terms of waiting period when insured switches
from one insurer to another or from one plan to another, provided the previous policy
has been maintained without break.
121
This credit shall be limited to the sum assured (including bonus) under the previous
policy.
When policyholder is switching from one insurer to other, Insurers shall process the
proposal with speed and efficiency and all decisions thereof shall be communicated
in writing within a reasonable period not exceeding 15 days from receipt of proposal
by the insurer.
If the policy results into discontinuance because of any delay by the insurer in
accepting the proposal, the insurer shall not treat the policy as discontinuance and
shall allow portability.
Insurers shall clearly draw the attention of the policyholder in the policy contract and
the promotional material like prospectus, sales literature etc.
Insurer to share the entire database including the claim details of the policies where
the policyholders has opted for portability with their counterparts where requested.
All applications for the portability shall be acknowledged by the insurers within three
working days.
Having looked into the external environment including the trends in the Indian health
insurance industry it becomes quite evident that the health insurance sector is growing at a
fast pace and so is the level of competition. The key developments in the Indian health
insurance industry had taken place post the privatization. There are multiple initiatives taken
by the regulator to improve the growth and built trust among the minds of the policyholders.
The standalone health insurance companies are here to stay and are increasing their market
share on a year to year basis. The detariffication of the insurance industry will help reduce
the subsidization offered in health insurance However, currently the health insurance
industry has a claim ratio of more than 100 percent and to ensure that the business is
profitable one needs to develop strategies for synergy among insurers and providers, and in
doing so it is important to understand the attitude, interest and concerns of the different
stakeholders. The health insurance industry is highly regulated unlike the healthcare industry
and it is important to meet the needs and expectations of different stakeholders.
122