The Insurance Regulatory and Development Authority (Irda) has recommended the minimum paid-up capital for third party administrators (TPA), which provide back-end services for claim processing, be increased by five times to Rs 5 crore in a phased manner.
A committee formed to look into the health of TPAs has recommended the increase be in phases, starting with the minimum equity requirement being doubled to Rs 2 crore. Subsequently, based on the revenue and billing, the paid-up capital level should be raised to Rs 5 crore, the panel headed by former Life Insurance Corporation of India Chairman S B Mathur said.
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| Revenue of TPA | Capital |
The report said fresh capital infusion should be done in the financial year subsequent to the year in which the billings cross the specified threshold. Existing TPAs could be given time till March 31, 2010, to comply with these conditions.
The Mathur committee has also suggested that insurance companies or their promoters be barred from stake in only one TPA, where their holdings should be at least 26 per cent.
“The fact that an insurer or re-insurer owns a stake in any TPA should clearly be disclosed to all clients of the TPA so that they can take an informed decision in this matter,” it added.
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In order to enhance governance and confidence, the insurers would be permitted to hold minority stakes across multiple TPAs on non-exclusive basis.
The committee has suggested that TPAs can invest only in TPA-related activities and in bank deposits or approved securities. Inter-corporate deposits are not permitted. The report mentioned that there can be a conflict of interest when a hospital group gets into TPA business.
“This could be phased out over time, or this could be addressed by due disclosures to insurers, there not being any common directors or employees in the hospital and the TPA,” it said.
The report has barred TPAs from processing the claims of life and health companies where it has done a pre-insurance health check up.
It added that a TPA cannot have common shareholding interest, directorship or employees in unlicensed companies in the business of health claims processing or health benefit administration.