PSUs rule out creation of standalone health insurance subsidiaries

Falaknaaz Syed - Mumbai

The public sector general insurance companies have ruled out the need of creating standalone health insurance subsidiary in near future, even as signs of the health insurance industry opening up for foreign players have become evident.

Recently, CS Rao, chairman, Insurance Regulatory Development Authority of India (IRDA), announced that IRDA has accepted the recommendation made by the Health Insurance Working Group to raise the FDI limit to 51 per cent from 26 per cent. In addition, the minimum capital requirement is likely to be brought down to 50 crore, for standalone health insurance companies wanting to set-up base in India.

The recommendations if accepted by the Finance Ministry will encourage foreign companies set up standalone health insurance companies in India resulting in a myriad of changes in the health insurance industry.

In the changing scenario, the strategy of the government owned four public sector General Insurance Companies is crucial to the market as the four public players have a major hold. For instance, the four players collected a premium of Rs 1427.9 crores while the eight private players collected Rs 304.27 crore health insurance premium in 2004-2005.

So will the Public Sector General Insurance Companies create health insurance subsidiaries to fight back the competition?

When the question was posed to M Ramadoss, CMD of Oriental Insurance Co Ltd, he said, “We are better suited individually. We have a wide reach with around 900 offices for each company. I don’t think, PSUs have to set up health insurance subsidiary company and so we are not talking on this line. Our focus is to have bigger business volumes, refine our portfolio, work on our losses and make health insurance loss proof. Setting health insurance subsidiary is not relevant to us.”

Concurred, M Parshad, CEO, General Insurance Public Sector Association, (GIPSA), “So far, we have not decided. Separate health insurance subsidiary maybe considered when things take shape.”

When asked about the competition that is likely to come as the market is being opened up for foreign players, B Chakraborti, CMD, National Insurance Co Ltd replied, “The four PSUs will decide on creating a health insurance subsidiary as and when the competition comes.”

Comments an expert, “The PSUs continue to believe in its strong network of 900 offices. The fact is that 62 percent of their business is concentrated only in five to six cities and does not come from the 900 branches. They are complacent and are underrating the competition they are likely to face when private players enter the health insurance industry.”

“Take for instance LIC, which has lost 20-25 per cent of its market share to private players. Similar complacency is seen in General Insurance Public Sector Companies who are losing the fire and engineering portfolios along with the health portfolio to private players.”

Differs Parshad, “We are not complacent and are exploring various avenues to get more business.”

So far the Public Sector General Insurance Companies, are in to the health business without any focus on it. According to experts, 40 per cent of the mediclaim business comes from corporates, who use health insurance as a bargaining tool while deciding to offer more lucrative and profitable portfolios of Fire and Engineering to the insurance companies. Since only group health is where they can offer discounts, it ends up being a loss making business.

Details of health business across various insurers during 2003-2004

Percentage growth in gross premium in insurance companies in 2003-2005

Adds the expert, “The PSUs participation has harmed the cause of specialising health insurance business. They have 150 products, one of them is health insurance without focus. The future developers of the health insurance industry are the private players who will have the expertise to develop the health insurance market. Foreign companies will bring with them global practices like health underwriting, product designing, pricing methodologies, client servicing capabilities, health provider contracting techniques, medical and case management systems and marketing skills as they are already operational in several developing countries.”

Differs Deepak Mendiratta, chief – Health Plans and Health Insurance, Max Healthcare, “PSUs are not going to face immediate competition, not atleast for 2-3 years because new companies will take time to establish their products, distribution channels etc. When PSUs start feeling the heat, they will escalate themselves and will fight tooth and nail. I don’t see an immediate threat.”

Suggests an expert, “A good suggestion is that each of the four PSUs pool in 25 crore to make the required minimum capital base of 100 crore and make a government owned standalone health insurance company.

On the other hand, it is learnt that Life Insurance Corporation of India (LIC), the largest life insurer in the country, intends to enter the health insurancemarket.

The recommendations after approval from the Finance Ministry need to be passed by the Parliament since it requires legislative amendment to the Act. The government’s move towards privatisation will face stiff opposition from the Left parties.

falak@expresshealthcaremgmt.com