Health insurance has become a buzz word, thanks to the Pradhan Mantri Jan Arogya Yojana that promises to insure 500 million people from the lower economic strata, and the insurance regulator’s renewed focus on it. Tapan Singhel, managing director and CEO, Bajaj Allianz General Insurance Co. Ltd, talks about how the health insurance landscape is expected to evolve

In July this year, the Insurance Regulatory Authority of India(Irdai) set up a working group to look into standardising exclusions in health insurance policies. What can we expect from it? Given that health insurance comes with many caveats, the work of the committee will mark the next wave of reform in health insurance.

Health insurance

First let’s look at the way health insurance has evolved in India. It was launched in 1986 and till about 2006, there was hardly any development. But in the last decade, health insurance has grown substantially and the products have seen important innovations. This is driven largely by consumer interest—people have realised that they need quality healthcare and insurance plays an important role in making that affordable.

Health insurance is crucial for quality healthcare which in turn is crucial to increase life expectancy. Hence, there needs to be a constant endeavour to improve this space. Also, health insurance is highly customer sensitive because the experience is very personal.

The committee will also look at ways of including new medical procedures as a result of technological advancements. There are some policies that exclude latest lines of treatment. For instance, some policies exclude certain cancer treatment drugs. Why?

Regular health policy

A regular health policy is just the basic cover that everyone must have, but over and above that, one should go for a top-up plan that increases the cover in the most cost-effective manner, and over that, one should have a critical illness policy that pays a lump sum on the diagnosis of a critical illness. 

Defined benefit plans like critical illness plans are beneficial because they give a lump sum that can be used to supplement income and seek better medical care. Because we are able to control claims, critical illness plans are cheap.

When a person is insured then she gets hospitalized for ailments like diarrhea and fever, which she wouldn’t do otherwise. This impacts the claims ratio, but this is taken care of in critical illness plans because we pay a lump sum against named ailments after a survival period of 30 days.

The cover under Pradhan Mantri Jan Arogya Yojana (PMJAY) is comprehensive with very little exclusions. It also covers pre-existing ailments. Also, in all the empanelled hospitals, treatments rates are pre-decided. Why haven’t insurers been able to replicate the model for retail health?

A retail policy, however, runs the risk of adverse selection. Imagine if we do away with the waiting period on pre-existing ailments, then everyone with a pre-existing ailment will line up and that will impact our claims ratio.

As it is, the combined ratio for retail health insurance is upwards of 100%, which means we are not making any money. Now about packaged rates. PMJAY is implemented on a national scale and for 500 million people; the sheer size gives the scheme the muscle to enter into package rates with hospitals.

In retail, only about 10% of hospitalisation is insured, so where is the muscle to negotiate rates? But with PMJAY, I am sure even retail will experience a cascading effect.