What challenges do you see for the health insurance sector in India?
The challenge according to me is how to make health insurance far more sustainable for the overall ecosystem and relevant for the customers.
In spite of making much progress in the last couple of decades, India is still behind the global benchmarks in healthcare. India is facing the threats of lifestyle diseases and existing communicable diseases and also infectious diseases like dengue and swine flu. If you put all this together, India is now holding an overall disease burden of close to 20% of the overall world disease burden. But our population share is around 18%. Therefore, a population of 1.3 billion makes it challenging to make health insurance far more universal. Moreover, our healthcare spend is 4.7-4.8% of GDP, while the world average is close to 9.9%. Then, compared to rest of the world, our out-of-pocket expenses for healthcare is around 65%.
Overall, healthcare expenditure, including spending by individuals in India, in the last year was around Rs7 trillion. During the same period, insurance companies would have paid a claim of Rs30-35,000 crore. So clearly, from a healthcare financing perspective, health insurance is providing around 4-5%. That highlights the relevance of health insurance in India. We need to focus on making it more relevant for a customer by ensuring that you can cover for more of the healthcare expenses of a customer and also making health insurance far more sustainable because insurance companies also want to make a profit.
As a standalone health insurance company, what are your views on the working group report on standardisation of exclusions in health insurance? Will this have a cost impact in terms of higher premiums?
The easy answer is that yes, it will have a cost impact. But insurance is ultimately pooling of risks and law of large numbers has to come into play. For instance, the kind of pricing that we have seen in Ayushman Bharat, whether it will make economic sense, only time will tell. But because the law of large number is playing, and the risk has been pooled, the prices have come down.
The good news is the standardisation of exclusions will make health insurance more relevant. A lot of people are reluctant to buy health insurance today because they are worried that even after paying a premium for 10 years, whether their claim will be paid or not. With exclusions getting standardised, price will not be a parameter to decide. As this trust gets developed, more people will buy more health insurance and, therefore, the law of large numbers will gradually come into play. So initially the prices may go up.
This will also help in making people understand that health insurance zaroori hai (it is necessary). If Mutual Funds Sahi Hai, then health insurance zaroori hai. I say this for three reasons. The first is that it gives you quality healthcare for years to come till the time you live. There is no upper limit of age. The second aspect is that health insurance helps you in protecting your life goals. It is a living benefit product. It prevents you from putting your hand in the bucket of savings that you had kept for a specific purpose like retirement or child’s education. And the third aspect is that the regulator has asked health insurance companies to also address wellness and healthy living.
A lot of health insurers provide health insurance without a medical test, even till age 45-50 in some cases. How do you rate this underwriting practice vis-à-vis other markets?
India is different at some levels. In some other markets, you get the cover from day one. We have the waiting period and disease-specific waiting periods. The other issue is that medical tests are also a cost for the insurance company. So the industry, has through data analytics, seen that below or above a particular age the incidences of health claims are going up or down. As India is becoming more healthy, that age is going up. So I think it is good for a health insurance company to constantly look at the data and decide at what point to incur that cost.
The claims ratio, particularly for standalone health insurance companies, is much below 100. But in some developed markets, this might result in insurance companies being made to pay it back to the customers.
That might not be the right way to look at it. There are two portfolios you have to look at, one is group and the other is retail. General insurance companies can focus on group business because they can cross-subsidise from other portfolios. But for standalone health companies, we cannot focus on group business because the pricing in the market is not economical. So we concentrate on retail and the claims ratio is much lower in retail. The reason for this is the waiting period of 2-4 years. So for CignaTTK, we are in the fifth year of operations, a large part of our portfolio is still in that no-claim zone. As the portfolio matures, the loss ratio goes up. And this is true for any health insurance company across the world. So it is not about today’s loss ratio, but about the projected loss ratio. Therefore, a standalone health insurance company that has been in business for 10 years, would have a retail claims ratio of around 65%. We are in our fifth year and are at 46%. We will also reach 65%.
While health insurance has become a life-long product, it hasn’t been yet simplified to the extent that it becomes easy to explain it to everyone. Why?
One of the reasons why there are question marks on health insurance, apart from the claims experience of people, is the complexity of the products. So while health insurance is regulated, the provider network is not at all regulated. So it is always a battle for a health insurance company to get the right customer making the right claim. That’s where Ayushman Bharat will help--in bringing simplicity to health insurance. Today if we do not have the exclusions and waiting period, chances are that a healthy customer will have to pay more premium. While it is pro-customer, it is complex. As the ecosystem gets developed, this simplification will also happen. Already some simplification has happened on the defined benefit critical illness products and personal accident products. But on the hospital side, the ecosystem has to emerge. Also, the standardisation of exclusions will simplify the product.
Ayushman Bharat will increase penetration
Health insurance’s contribution to total healthcare expenditure is quite low. How can Ayushman Bharat change this?
Currently, around 28-30% of the country’s population has some form of health cover. About 3-4% have a retail health plan and the rest is government-sponsored schemes. Even before Ayushman Bharat, government schemes have been there. Ayushman Bharat will now take this to a higher level of about 45%. This will result in an overall healthy population and will have a positive effect on productivity and the economy.
The second issue is that India has a lesser overall ecosystem like hospitals and beds. Even a majority of these are in urban areas. Beyond that, centres, including primary healthcare centres, are not registered. Ayushman Bharat will create this ecosystem in rural India. Moreover, the cost of treatment will get standardised. As the ecosystem will get developed, chances are that private health insurers will be able to go and sell retail health insurance in these markets, at a price which could be much cheaper. Will it happen tomorrow? No. But will this happen in the next 5 years? Definitely yes.