Even though the Indian health insurance market grew by 38% in 2006-07, only 1.08% of India’s billion plus population has medical insurance. The general perception is that the prospects for growth in this sector of the insurance market are good.
Health insurance policies were first introduced in 1986 at a time when the Indian insurance industry was nationalised. The policies on offer were complicated to read and offered limited cover. There were no third party administrators operating in India, and there was no direct settlement of claims between health Insurer and hospital. There were therefore issues concerning claims servicing, which involved an Insured following cumbersome procedures to get claims authenticated and paid. The business was not profitable for the nationalised Insurers, and not popular with the public at large.
The original ‘Mediclaim Policy’, however, developed and in many cases has provided the base model for the health care insurance policies that were introduced immediately after liberalisation of the general insurance sector at the turn of the millennium.
Health insurance, however, saw no specialist players until relatively recently with the entry into the market of companies such as Star Heath & Allied Insurance and Apollo DKV Insurance. This is because there was a general expectation that the insurance industry regulator, the IRDA, would set a smaller capitalisation requirement for health insurers and/or amend the rules for foreign equity ownership in Indian Insurers in recognition of the fact that health insurance loss ratios were not good, and therefore finding an Indian partner to invest 76% in a health insurer would be a difficult task.
The IRDA did not, however, relax either the capitalisation requirements or foreign investments caps. Initially, therefore, the health insurance market did not grow as quickly as may have been expected.
The generally optimistic perception for the growth of health insurance is certainly supported by the growth in the number of policyholders, but the profitability of this line of business remains an issue. The health insurance sector had a loss ratio of about 78% in 2003, which deteriorated to 98% in 2004-05. Currently, available figures suggest that the claims ratio stands at 110% - 120%.
Growth in policyholder numbers, more effective third party administration and an effective network of hospitals is expected to see the numbers improve. Other changes have been effected to encourage growth in this sector. For example:
- Life insurers have been allowed to sell health insurance. Initially, life insurers were only allowed to sell certain types of health covers as a supplement to a life policy. However, the (IRDA) has allowed life insurers to sell pure health insurance products subject to product specific approvals.
- The standard mediclaim policy has undergone several revisions and modifications. In recent years, private health insurers, such as Apollo DKV, have been offering fresh products with increased covers and sums insured.
- The growing expense of health care in India. Private hospital rates are still low compared to the rates charged in more developed countries, but high when compared to average Indian earnings. It is no longer uncommon for Indian employees to now expect that health care will be part of an employment package.
- With the opening up of the market to private competition, the claims process has become much less cumbersome.
Support for a health insurance market has also come from some less obvious sources. Indian states have started relying on insurance policies to meet some of their legal obligations to provide health care to their citizens. The central government has also proposed the introduction of free health care insurance for the poor. This plan is meant to cover every poor family for INR30,000 (c. US$750) per annum. The central government will pay 75% of the premium, leaving the remaining 25% to be covered by state governments.
The IRDA has also encouraged Micro-insurance as a means of extending the availability of health insurance to areas of the market that, geographically and economically, may not have been at the forefront of Insurers’ business plans.
The Legal Playing Field
At the same time as the market grows, the IRDA and the Courts are stepping in to create a more consumer friendly playing field, particularly as regards the treatment of senior citizens; the operation of the pre-existing diseases exclusion, and the reluctance of insurers to renew policies where the claims experience has been bad.
Senior citizens had been complaining about the reluctance of Insurers to issue policies to them, and the inclusion of disadvantageous terms when policies were offered – such as hefty increases in premium rates, added exclusions and conditions, etc. In May 2007, the IRDA set up a Committee on Health Insurance for Senior Citizens to make recommendations. Its members included representatives from the General Insurance Corporation of India, Oriental and Apollo DKV as well as others. The Committee reported in November 2007 and made the following main recommendations:
- Senior Citizens should have some assurance that their policies will be renewed.
- The Industry should adopt standard terms and conditions, such as for the definition of pre-existing diseases.
- The Committee also said that policy wordings should be simpler for the lay person to follow, suggesting that uniform terminology be used by all Insurers to lessen confusion in the public mind.
The IRDA is still in the process of evaluating the Committee recommendations and none of them have been formally adopted, but there are indications of an indirect reliance on part of the Committee’s recommendations during the File & Use procedure. This is the process whereby a non-tariffed product is brought to market. It must first be filed with the IRDA, and only thereafter can it be sold. During the filing stage, the IRDA has been paying particularly close attention to exclusion clauses in general, and the pre-existing disease exclusion in particular.
The Courts have taken a similar interest. The Judgment in New India Assurance v Akshoy Kumar Paul was handed down by the Delhi High Court in November 2007 and has only recently been reported. The Court had to consider whether, on renewal, a state owned Insurer could refuse to renew or insert an exclusion clause if it did renew. The Insured had held the policy for 5 years, renewing it on 4 occasions. In the preceding year, he had suffered a heart attack. It was held that New India must renew, and the ‘renewal of an insurance policy means repetition of the original in a manner that the old policy gets revived on the same terms and conditions as were incorporated in the original policy’. The exclusion clause was not permitted.
Although it interferes with principles of privity of contract, the judgment can be justified by reference to earlier decisions to the effect that state owned Insurers have special obligations to act fairly because they are state owned and therefore an extension of the state. It remains to be seen whether the obligation to renew on the same terms will be extended to private Insurers.
Nevertheless, there is a clear pro-consumer trend in the Courts and at the regulatory level when it comes to health insurance.
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