Standardization important for covid-19 claims: Ritesh Kumar, HDFC ERGO
7 min read 21 Apr 2020, 10:39 AM ISTWhat is important right now is to have a protocol by way of standardization because we’ve been asked to settle covid-related claims on priority basisThe issue that we are facing out of the little experience we have is that the size of these claims is very significant
PremiumRitesh Kumar, managing director and chief executive officer of HDFC ERGO General Insurance Co. Ltd joined the company in 2008. With an experience of about 15 years in the insurance industry, Kumar spearheaded the acquisition of Apollo Munich Health Insurance and formed HDFC ERGO Health Insurance Co. Ltd.
In a conversation with Mint, he talks about the need for standardization in settling covid-19 health insurance claims, the impact of the pandemic on the insurance business and the challenges insurers will have to face once the crisis settles. Edited excerpts
How are you dealing with the covid-19 woes and what could be the possible impact of the pandemic on India’s insurance industry?
We have 15 million customers within HDFC ERGO Health and HDFC ERGO General and 10,000 employees. My main focus today is to ensure that we’re able to provide service to our 15 million customers seamlessly, without compromising the safety of our employees. We’ve been fortunate in having a fairly evolved digital architecture, which is helping us a lot right now. We have operations and back office support in Mumbai, Delhi, Chennai and Hyderabad. All four centres are quite far away from each other which has been a safeguard in times of man-made disasters or acts of god.
But suddenly, now we’re facing a situation where all our centres are down so we’ve been put to test this time around. Definitely our digital infrastructure has come to our rescue because within the two entities, we get 10,000 daily interactions. Earlier, 30% of these were serviced through the digital mode, but now, though interactions have gone down, it’s all being serviced digitally.
We aren’t facing too much trouble dealing with customers in tier 2 and tier 3 cities because people are trying to understand and use our digital systems. I firmly believe that manual servicing cannot be eliminated completely but the advantage is that a good digital system can offload some pressure.
To answer the second half of your question, as an industry, we largely mirror what is happening in the economy. We insure existing assets as well as incremental assets. If asset creation suffers, it will have a direct ramification on our industry. For instance, last year, auto sales were down 18%, therefore, our industry had an extremely muted motor insurance growth. If new industrial activity doesn’t happen, then we’ll have muted engineering premiums. If trade is going to be less, then we’ll have muted marine premiums. If real estate projects are not completed for a while, fire premiums will stagnate or come down.
If I were to give you some statistics, the nominal GDP growth rate of the country over the last 20 years has roughly been about 12-13% on an average and the industry growth rate has been about 16% on an average. Therefore, as an industry we’ve grown at 400 basis points over and above the nominal GDP growth rate. Now the IMF (International Monetary Fund) projection talks about 1.9% growth this year, so obviously the insurance industry’s growth rate could be muted too.
According to General Insurance Council, insurers are experiencing a number of health claims for covid-19. What has HDFC ERGO’s experience been with coronavirus-specific claims? Are you feeling the pinch and do you plan to revise prices upwards?
We roughly have a market share of 10% of the retail health insurance business. Out of the 200-odd claims (until 15 April) that have come into the industry, we’ve received 20. The issue that we are facing out of the little experience we have is that the size of these claims is very significant. Some claims are just ₹1.5 lakh and some go up to ₹7 lakh.
Therefore, it is very important that there is some amount of standardization for covid-related claims similar to how there is blanket standardization on the cost of testing. In fact, even hospitals feel there is a need for standardization. What is important right now is to have a protocol by way of standardization because we are approving claims in 14 minutes on average and we’ve been asked to settle covid-related claims on priority basis. But when we see such wide difference in value, it is going to create issues.
If there is standardization, it’ll help the industry respond faster. An example of standardization would be the government saying that for any case which is just medical management, the package would cost ₹X. If there’s a need for ICU and ventilator facilities, then the package would cost ₹Y. This would remove ambiguity and expedite the claims settlement process. Hospitals too would be able to send out the claims to us faster and without much paperwork.
Revising prices is a very evolved and complicated process and we can’t suddenly decide to increase premiums. We’ll have to submit the necessary data to Irdai (Insurance Regulatory and Development Authority of India) and if Irdai approves our request, we’re required to give a notice of 60-90 days to the policyholders. Also, we can hike premiums only at the time of renewal. Having said this, if the amount that a policyholder consumes out of the total sum insured continues to be high as a result of subsequent bouts of hospitalization, then at a larger level if this leads to a much higher claims volume, it will eventually build a case for insurers asking for higher premiums.
HDFC completed the acquisition of Apollo Munich Health Insurance in January this year. What value addition did the acquisition bring to the policyholders?
We completed a part of the acquisition on 9 January 2020 and we applied to the National Company Law Tribunal (NCLT) for the merger in February. Apollo Munich (which had 2 million policyholders) is now HDFC ERGO Health and the former had a cashless tie-up with nearly 5,000 hospitals. We, however, have a tie-up with about 11,000 hospitals, so the first thing we have already done is to ensure that all the hospitals with which we have a cashless arrangement serve the HDFC ERGO Health policyholders as well.
The second value addition is that once the merger is through we will try and replicate processes across both the organizations. We are able to do a cashless claim approval in 14 minutes on average and over the next 60 days, we’ll be able to replicate that for HDFC ERGO Health customers too. Also, post the merger, Apollo Munich’s customers will get access to a wider product range. But nothing changes for the policyholders out of the acquisition, neither in terms of premiums nor the scope of the products. There is no change in underwriting criteria as well and all continuity benefits will stay.
The aviation industry like many others has taken a massive hit due to the pandemic which means there would be a sharp dip in demand for travel insurance. How is HDFC ERGO cushioning against the drop in demand for non-health insurance products?
Travel has come to a halt but travel premiums from an industry perspective are not very significant in terms of volume. It would not add up to even 1% of the overall industry volumes. But yes, incremental business will drop to a flat zero now. Even for other non-health products, the growth is slow currently but because this is an evolving situation, we’ll have to watch out for what’s going to happen.
Having said this, given the fact that the pandemic will have an impact on the economic growth rate, there will be corresponding impact on insurance segments such as motor, corporate premiums, marine, property insurance and so on.
The only plan for us right now to cushion against this drop in business is to try and manage our expenses. Any expansion that we’d have thought of in the past months will have to be put on hold for the time being. Further, incremental hiring and opening up of new offices will have to be pushed until there’s more clarity.
Post covid-19, what are some of the challenges the insurance industry will have to deal with and what are the possible solutions?
The immediate challenge is going to be to bring the business back on track. But it’s also necessary to note that we are a related industry so some part of our business depends on how other industries perform. Demand for our core products depends on the kind of demand the related industries experience. For instance, demand for motor insurance will see growth if auto sales go up.
Our next challenge would be to sustain the digital curve because this will improve the overall servicing architecture of the industry and this is something which we really want to focus on because it’ll definitely enhance our service standards. We’ll have to ensure that our existing business is seamlessly renewed.
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