Posted on Apr 16, 2012 by Sergio Ulloa
India's fast growing demand for affordable health cover is attracting greater business attention, with both life and non-life insurance companies now entering the market with innovative new protection and savings medical insurance products. This intense competition for health insurance customers has only intensified in recent months, with the introduction of new savings-linked and investment-oriented health insurance schemes by some of the country's largest insurance groups.
India's insurance sector first opened up to private and international investors in 2001. Over the past ten years coverage rates across the populous South Asian country have doubled and the domestic insurance industry has overtaken several more developed financial markets in the process. The overall number of insurance policies sold has increased several times over, and combined premium income is now projected to reach between US$350 to US$400 billion by 2020. Health insurance, in particular, has become as one of the country's fastest growing insurance lines, accounting for almost a third of new written premiums last year. Sales of medical insurance products have been driven by three key factors: a low penetration rate of about 5 percent at present, surging treatment costs, and a lack of other social safety options across most of India. With total expenditure on healthcare, through both Indian government schemes and private sector activity, expected to exceed US$200 billion by 2015, even more significant opportunities for the country's health insurance sector will likely emerge. Over the next three years, health insurance has the potential to become an INR300 billion market (US$6 billion), according to industry observers.
The introduction and increased proliferation of private sector players in India's health insurance sector has worked to both develop innovative new coverage products and increase service standards for clients in the domestic market. Of particular note has been how the entrance of several major life insurance brands, including Life Insurance Corporation of India, Aviva Life Insurance and Max Life Insurance, has affected the market recently. These life insurers offer largely savings-based health plans that provide lump sum compensation to clients in case of a critical illness or other malady specifically defined by a specific policy. These long-term products have tenures that can last up to 20 years. When the policy expires, customers are entitled to receive the fund value. Normally this is not a cashless process as payment is reimbursed on submission of medical bills. Most of these health insurance plans sold by life insurance companies are unit-linked insurance products (Ulips), whereby returns are determined by the performance of the stock market.
While life insurer health plans are tied to equity returns, medical insurance policies sold through non-life companies tend to provide cashless hospitalization cover for policyholders in the event of an illness or accident. These plans, with premiums reviewed and renewed annually, also offer customers a variety of additional value-added benefits such as hospital cash allowance, home nursing allowance and recovery grants. Some insurance companies offer these outpatient services as add-on covers with their hospitalization plans, while others provide discounts through certain affiliated hospital networks. These products have so far proven to be the most popular in India. Health insurance policies sold through non-life and dedicated medical insurers currently dominate the market, accounting for roughly INR100-120 billion (US$1.9-2.3billion) of the country's INR150 billion (US$3 billion) health insurance sector. It is expected that increased intra-market competition going forward will enable successful insurers to meet the country's changing healthcare needs.
Despite the positive growth indicators, India's health insurance market still has many problems to contend with in order to match its true potential going forward. The most important challenge for insurers remains the low level of awareness concerning the value of obtaining adequate coverage as a valuable savings and investment tool across much of the country. This problem is slowly being addressed as more insurers develop their product and distribution platforms to reach previously untapped regions and client bases with more innovative and affordable coverage products, including microinsurance and local bank and government tie-ins
Of the Indian consumers already aware and enrolled in health insurance schemes, the industry faces the continuing challenge of keeping them happy. Customer satisfaction levels for health insurance in India have consistently ranked below comparable levels elsewhere, with critics frequently citing the low coverage of plans in terms of both the diseases and number of hospitals covered. Unlike other homogenous general insurance products, premiums for medical plans are based on the health of an individual policyholder and this had lead to confusion and fraud in the Indian market and increased policy cancellations from customers who do not find any value in their health insurance policies.
The Insurance Regulatory Authority of India (IRDA) has come to the forefront in tackling these service standard issues recently. Speaking at the first meeting of the India Health Insurance Forum in Hyderabad last Thursday, IRDA chairman J Harinarayan said the industry must now work to improve communication with its customers, particularly with regard to health insurance policy documentation, as a third of all consumer complaints this year have been directed towards health insurers. According to IRDA data, of the 92,898 complaints levied at the non-life sector so far in 2012, 38,891, or 37.5 percent have been focused on health insurance issues. "If one-third of complaints are from the health side, I will conclude that the nature of communication on health insurance policies and the understanding of the policy by the consumer are areas of concern. Probably, the lack of clarity is reflected in the increasing number of complaints,'' IRDA chairman J Harinarayan said, adding that "good communication is the responsibility of the insurance company and not of the policy holder. An insurance policy, as a contingent contract, has to be specific and unambiguous."