Project Report Submitted on

SCOPE OF HEALTH INSURANCE IN INDIA

Submitted by

Swati Bhosale Roll No: 69 Master in Finance Management (2009-2012) University of Mumbai MET Institute of Management
Mumbai 400050

METS INSTITUTE OF MANAGEMENT

PART-TIME MASTERS 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 METs 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: ___________________________

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 METs 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.

Index
Sr.n o. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Topics Executive Summary Introduction History Why Health Insurance Opening up of the Insurance Sector Government regulation pre and post Nationalization Health Sector in India State Companies v/s. Private companies The changing Attitude Current Policies available in market, the major players & important schemes. GIPSA Third Party Administrators (TPAS) Employee State Insurance (ESI) Scheme Health insurance for poor by NGOs SEWA's Health Insurance and Social Security Schemes for the Poor The Current Scenario Forecasting and Statistical Study Conclusion

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 Indias 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, itll 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.

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.
6

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.

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
8

non-Indian insurers as also 75 provident societies245 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

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 reinsurer. 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 countrys 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

10

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 equipments 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.

11

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

and functions of the Authority shall include, 12

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; 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;

13

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

GOVERNMENT REGULATIONS BEFORE & AFTER NATIONALISATION

14

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 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%.

15

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
16

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 countrys 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. 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
17

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.

18

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 Quality of healthcare benefits

subsidized)

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 scenariopublic 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
19

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 companys 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 through group insurance administration. Specific to developing countries, like India, is another
20

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. 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
21

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.

22

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 sellers 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, riskpooling mechanism is the safest bet. Till recently the monopoly on health insurance in India was held by Mediclaim, which was more selfcentric 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
23

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. 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 possiblethe 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 GICs 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
Indias 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. GIPSAs group of four public sector general insurance companies New India Assurance; United India Insurance; Oriental Insurance and National Insurance; own 80% of Indias 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 TPAs 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 TPAs 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. Its 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 patients 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 TPAs 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
27

most recent moves. Other companies looking to become GIPSAs partners in the captive TPA include United Healthcare, Patni Computers; Coris International; Cambridge Solutions; Lason; and existing TPAs 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 The Code of Conduct laid down by IRDA said that TPAs would have to bring to notice of

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

28

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 IRDAs 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 doesnt 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. 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

29

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 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 84,45,00 Units ESI Hospitals
30

0 125

Number of ESI Hospital Beds ESI Dispensaries Insurance Medical Officers Insurance Medical Practitioners

23,334 1,443 6,220 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.

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

31

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, 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
32

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 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
33

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 Cos 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 PSUs 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 TPAs 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

Companies Reliance ICICI Lombard HDFC Chubb Star Health Royal Sundaram Cholamandal am bajaj alliance TATA-AIG IFFCO Tokio Oriental United India New India National Total Private Public

2007 67.69 735.8 5 10.18 11.05 97.45 38.6 158.2 6 45.35 71.89 440.5 3 434.6 4 765.2 9 333.1 2 3209. 9 1236. 32 1973. 58

Differe Increa 2006 nce se % 8.61 59.08 686.18 274.4 6 461.39 168.11 4.55 5.63 123.74 0 11.05 100.00 50.59 21.11 97.69 30.62 51.97 359.7 2 359.2 6 669.2 8 294.2 5 2222. 11 539.6 1682. 51 46.86 17.49 60.57 14.73 19.92 80.81 75.38 96.01 38.87 987.79 696.72 291.07 92.63 82.85 62.00 48.11 38.33 22.46 20.98 14.35 13.21 44.45 129.12 17.30

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

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.

44

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 A note on policy initiatives to protect the poor from high medical costs, Indian Institute Convocation Address at the Institute of Insurance and Risk Management by - Dr. C.

Management, Ahmedabad.

of Management, Ahmedabad. Rangarajan Chairman Economic Advisory Council to the Prime Minister
Websites:

www.irda.com www.globalinsurance.com

45

THANK You!!!

46