30 minute interview

'Shift from Corporate to Retail Business Has Led to Increase in Health Premium'

The Insurance Regulatory and Development Authority (IRDA), an eight-year-old organisation, came into force to regulate, promote and ensure orderly growth of the insurance business and re-insurance business. Known for taking a number of initiatives and implementing facilities, seasoned bureaucrat and outgoing Chairman of IRDA, CS Rao spoke to Manjusha Morgaonkar and Sonal Shukla regarding the issues and challenges faced by the health insurance sector. Excerpts:

CS Rao Chairman, IRDA

According to recent news report health insurance continues to be the fastest growing segment with annual growth rate of 55 per cent. What are its growth drivers?

Health insurance has witnessed a rapid growth in the past five years. It has increased from Rs 600 crore in 2000-01 to Rs 4,000 crore in 2007-08 and now accounts for 16 per cent of the total premium, against two-to three per cent earlier. This year, health insurance is expected to grow by 50 per cent.

The growth drivers for health insurance are same as growth drivers for life insurance. Looking at life insurance growth, it is led by a tremendous growth in the Gross Domestic Product (GDP), which is primarily propelled by service sector's growth. Thanks to this amazing growth, a number of companies are foraying into this market and looking for opportunities to invest in long-term growth.

And when it comes to health insurance, there is a substantial increase in the stress levels leading to ailments requiring costly treatments. Gone are the days when patients were able to meet their medical costs out of their savings. Today's high-end medical treatments invariably burn a hole in a common man's pocket. As per the study undertaken by the WHO, the insurance in India is mainly financed from out-of-pocket expenditure in comparison to all other countries involved in the study including China, Sri Lanka, Vietnam to name a few. There has to be a pooling system and today that requirement is fulfilled by health insurance.

What are the issues facing the healthy development of health insurance sector in India today?

Initially, the general insurance companies gave little attention to health insurance, as they were busy earning good profits, doing corporate business from fire and engineering insurance, thanks to the old tariffs. There were no incentives available for people to do retail business.

However, today with the removal of tariffs there is huge investment taking place in retail business and its growing area of interest is health insurance. Looking at the tremendous demand for health insurance, firms will line up a wider range of products to suit semi-urban and rural areas. There is a shift from the current corporate business to retail business. This has led to substantial increase in the health premium. Just to give an example, in 2003, the total premium was Rs 600 crore but in the current scenario, the same shot up to as high as Rs 3,000-4,000 crore making it the second largest segment of the industry from the fourth position earlier.

What is the rationale behind the formation of working groups with industry participation and IRDA?

The formation of the working groups is to throw more light on the issues facing the health insurance sector and resolve them. The issues were identified during the first Health Insurance Summit 2007 held in October last year. We had group leaders from various disciplines formed after the summit with the support of IRDA representatives in the team. It is an attempt to bring in all the stakeholders who will address the issues and come up with suggestions to resolve them.

These working groups have studied different areas like data records, issues with regards to service providers and public awareness. Now, all the groups have come out with their own recommendations and can start the process of improvement in their respective areas. We will now approach different agencies, ask them to have a careful look at those recommendations and give their recommendations for further improvements.

What measures is IRDA taking to avail better health insurance products in rural areas?

To start with, there are number of approaches observed in the market. A number of governments are taking their own initiatives in rural health. We are watching these experiments with great interest. Looking at the size of the country, there cannot be a single solution to all the problems. Therefore, the problems will have to be tackled regionally and then solutions found in each region.

How do you plan to increase the awareness level about the health insurance among rural masses?

The awareness level will automatically increase in rural areas as large numbers of insurance companies start advertising their products in those areas. Today, health insurance is a hot topic. However, eight years ago, the situation was totally different with nobody talking about health insurance because there was only a LIC and a GIC.

Similarly the awareness can be created through newspapers with regards to any issues raised on insurance. This will create general level of awareness among the educated people who themselves are not very familiar with the insurance issues. IRDA will also work proactively to get involved in creating awareness that will come over a period of time, as we are only eight years old organisation. We have to build up our own teams to make the process smooth.

The problem will have to be handled differently in urban and rural areas as access to healthcare is limited in the latter. What is the point in having an insurance cover if the patient is unable to get the treatment required? Therefore, we have to see that there is a proper tie-up between insurance company and the hospitals through a TPA network. Secondly, the hospitals must be in a position to provide the kind of treatment that is required, as some of them may not have all the necessary equipment. Thus, identification of hospitals is another major issue, which needs to be tackled. There is no doubt that five years from now, there will be a huge increase in the health insurance awareness and premium, which is absent today. However, when compared the position about eight years ago, there is a substantial increase.

When you look back, which are the contributions that you would like to remembered for?

De-tariffing, micro insurance and guidelines on ULIPs.

You were instrumental in initiating de-tariffing. Are you happy the way it was executed?

Yes I am, as it has been has smoothly executed. Normally, when de-tariffing takes place, companies experience a drastic drop in premiums. Last year's 13 per cent growth in spite of complete de-tariffication compares well with 25 per cent growth in the earlier year.

Any suggestions for the improvement of the health insurance sector?

All the players should come together and engage in continuous discussion because this is one critical area where there is a felt need. We also need development of health insurance data repository, mechanism for information dissemination. This would enable development of new products. We should ultimately aim for unique hospital ID based on GIS code and a unique identification number to be allotted to every insured person.

healthcare@expressindia.com