National Health Insurance Scheme needs realistic price

Move will help make health insurance scheme sustainable in the long run, say panelists

Actuarial pricing will make the government’s National Health Protection Scheme (NHPS) sustainable in the long run, according to panelists at Business Standard’s Insurance Round Table on Thursday.

Discussions on the scheme were the major talking point at the Round Table, considering the scale and ambition of the project. Union Finance Minister Arun Jaitley announced the NHPS in his Budget speech this year. Under the scheme, 100 million families or 500 million people will be provided a health insurance cover of ~500,000 at ~1,000-1,200 per family per year.

“We do have concerns on the pricing of the scheme, as reported by the papers, because only actuarial pricing will make it a sustainable one,” said Alice Vaidyan, CMD of General Insurance Corporation of India.

Actuarial pricing is used to develop premiums (pricing) to cover the losses from underwritten risks and provide benefits. It involves estimating the cost of a specific type of policyholder so that the price arrived at not only attracts more customers but also provides adequate coverage, resources, and profits.

“CONTRARY TO PUBLIC PERCEPTION, THERE IS NO GOVERNMENT INTERFERENCE IN PUBLIC SECTOR INSURERS” ALICE VAIDYAN CMD, General Insurance Corporation “THE RUNWAY FOR GROWTH IS HUGE FROM HERE ON. IT IS A QUESTION OF HOW WELL WE ARE ABLE TO TAP THE OPPORTUNITY...” AMITABH CHAUDHRY MD & CEO, HDFC Standard Life Insurance “WE UNDERESTIMATE THE ENTREPRENEURSHIP OF DOCTORS AND HEALTH CARE PROFESSIONALS IN INDIA” ANUJ GULATI MD & CEO, Religare Health Insurance “INSURANCE IS ONE OF THE KEY WAYS BY WHICH WE CAN PROVIDE SOCIAL SECURITY IN THE COUNTRY” ARIJIT BASU MD & CEO, SBI Life Insurance “IF INCOMES OF 60% OF THE POPULATION GO UP, THEN TO THAT EXTENT INSURANCE COMPANIES WILL GET MORE BUSINESS” G SRINIVASAN CMD, New India Assurance “CASHLESS PROGRAMMES IN MEDICAL (INSURANCE) AND MOTOR VEHICLES HAVE HELPED DELIVER A SUPERIOR EXPERIENCE” SANJAY KEDIA Country Head & CEO, Marsh India

The panel comprised Vaidyan, New India Assurance CMD G Srinivasan, HDFC Standard Life MD and CEO Amitabh Chaudhry, SBI Life Insurance MD and CEO Arijit Basu, Religare Health Insurance MD and CEO Anuj Gulati, and Marsh India Insurance Brokers Country Head and CEO Sanjay Kedia.

The panelists went into the main challenges in implementing such a policy. At the scale envisioned, the challenges relate to pricing, effective health care networks, value delivery, fraud detection, risk management, and sustainability over the long run.

While pricing, enrolment, and processing claims are important, the underlying health care network and workforce in the country require large-scale reform and improvements, according to the panelists. But leaders of the insurance industry remain optimistic.

Srinivasan said the scheme would bring in the infrastructure. “As money comes in through insurance claims, hospitals and the wider network will come up in smaller areas,” he said.

“The second challenge of abuses that tend to happen in these mass schemes is something that insurers will ensure is controlled,” he said. There should be a good technology platform, and there must be adequate controls on the quality of health care, he added.

Gulati said: “When we look at the incidence rates, the average claims sizes and so on, what was earlier estimated to be a ~750 to ~800 per family annual premium is now settled at ~300-350 premium. That is the beauty of the law of large numbers working in your favour.”

Kedia said capital allocation could be much higher for the scheme than envisaged.

“We know that health inflation, as a thumb rule, is 50 per cent more than consumer inflation, and these programmes don’t need cost allocation only in terms of the health inflation index but also in terms of user awareness,” he said.

The Budget has created tax arbitrage between unit-linked insurance policies (ULIPs) and mutual funds because mutual fund investors have to pay 10 per cent as tax on long-term capital gains whereas investors in ULIPs do not.

“I think the nature of products — ULIPs and mutual funds — is very different. Hence tax arbitrage is unlikely to lead to a shift in investors. You can compare a traditional endowment fund and ULIP, but you cannot compare ULIPs with funds as ULIPs give you a good return and an insurance cover, which is part of the product,” said Basu.

The CEOs also said mis-selling in the industry had come down drastically.

“The data is clear that insurance companies have done a solid job to curb misselling. They recognise misselling is bad for business. And the best way of curbing misselling is to keep the products simple,” said Chaudhry.

According to the panelists, there is room for all to grow in this market, even when foreign competition is increasing its presence in the country.

Insurance companies are also increasingly taking help from reinsurers to spread their risks.

“We have faced natural calamities, we faced thousands of crores of losses, but through reinsurance we have been able to address these issues. We have a long history and we know how to insulate ourselves from concentration risk. We spread our risk, that is the beauty of insurance,” said Srinivasan. The panelists said the younger population was driving growth in insurance because of its higher awareness and online sales were increasing.

With six insurance companies getting listed on the bourses in the past one year and a half, CEOs said there was a greater need to educate investors and analysts about the nature of their business and how to value it.

“As more and more of us get listed, there is a huge job for us to educate retail investors,” said Chaudhary.

Vaidyan said it was a challenge in educating analysts about the nature of the business because reinsurance was a B2B business.

Public sector insurers also highlighted there was a perception difference between them and the private sector players.

Srinivasan said there was an anti-public sector bias in the market. “It is wrong to paint all public sector companies with the same brush,” he said, adding government interference was much less in insurance than in banking.

Basu said the market was ownership-agnostic. “Corporate governance or the manner in which companies are run is very important. So the market is not looking only at ownership, it is only one of the factors,” he said.