BS Insurance Round Table 2018: Govt's health scheme needs realistic pricing

Actuarial pricing will make the government’s National Health Protection Scheme (NHPS) sustainable in the long run, said panellists at the Business Standard Insurance Round Table held on Thursday.

Discussions around the health insurance scheme were the major talking point at the Round Table, considering the scale and ambition of the project. Finance Minister Arun Jaitley announced the NHPS policy during his Union Budget speech of 2018-19, under which 100 million families, or 500 million individuals, would be provided a health insurance cover of Rs 500,000 for the price of Rs 1,000 to Rs 1,200 per family per year.

“We do have concerns on the pricing of the scheme, as reported by the papers, because only actuarial pricing will make it a sustainable scheme,” said Alice Vaidyan, CMD of General Insurance Corporation of India. 

Actuarial pricing is used to develop premiums (pricing) with the aim to cover the total losses from underwritten risks, and provide future benefits payable to beneficiaries. It involves estimating the future cost of a specific type of policyholder, so that the price arrived at not only attracts more customers but also provides adequate coverage, resources, and profits.

The panel comprised General Insurance Corporation CMD Alice Vaidyan, New India Assurance CMD G Srinivasan, HDFC Standard Life MD & CEO Amitabh Chaudhry, SBI Life Insurance MD & CEO Arijit Basu, Religare Health Insurance MD & CEO Anuj Gulati, and Marsh India Insurance Brokers Country Head & CEO Sanjay Kedia.

The panellists delved deeper into some of the main challenges in implementing such a policy. At the scale envisioned, the challenges relate to pricing, effective health care networks, value delivery, fraud detection, risk management, and sustainability over the long run.

While pricing, enrolment, and processing of claims were important, the underlying health care network and workforce in the country requires large-scale reform and improvements, the panellists opined. But leaders of the insurance industry remain optimistic.

G Srinivasan, CMD of New India Assurance, believes that the scheme will eventually bring in the infrastructure. “As money comes in through insurance claims, hospitals and the wider network will come up in smaller areas,” he said.

“The second challenge of abuses that tend to happen in these mass schemes is something that insurers will ensure is controlled,” he said. There should be a good technology platform, and that there must be adequate controls on the quality of health care, he added.

“When we look at the incidence rates, the average claims sizes and so on, what was earlier estimated to be a Rs 750 to Rs 800 per family annual premium, is now settled at Rs 300-Rs 350 premium. That’s the beauty of the law of large numbers working in your favour,” said Anuj Gulati, CEO and MD of Religare Health Insurance.

Going forward, the capital allocation needed could be much higher for the scheme than envisaged, said Sanjay Kedia, country head and CEO at Marsh India Insurance Brokers.

“We know that health inflation, as a thumb rule, is 50 per cent more than consumer inflation, and these programmes do not only need a cost allocation in terms of the health inflation index, but also in terms of user awareness,” Kedia said.

The Budget has created a tax arbitrage between unit linked insurance policies (ULIP) and mutual funds as mutual fund investors have to pay 10 per cent tax on long-term capital gains, whereas ULIP investors do not.

“I think the nature of products - ULIPs and mutual funds – is very different. Hence, tax arbitrage is unlikely to lead to a shift in investors. You can compare a traditional endowment funds and ULIP, but you cannot compare ULIPs with funds as ULIPs give you a good return and an insurance cover which is a part of the product,” said Arijit Basu, MD and CEO of SBI Life Insurance.

Insurance CEOs also felt that mis-selling in the industry had come down drastically.

“The data is clear that insurance companies have done a solid job to curb mis-selling. Insurance companies recognise mis-selling is bad for business. And the best way of curbing mis-selling is to keep the product simple,” said Amitabh Chaudhry, MD and CEO of HDFC Standard Life Insurance.

According to the panellists, there is room for everyone to grow in this market, even when foreign competition is increasing presence in the country.

Insurance companies are also increasingly taking help of reinsurers to spread their risks.

“We have faced natural calamities, we faced thousands of crores of loss, but through reinsurance we have been able to address these issues. We have a long history and we know how to insulate ourselves from concentration risk. We spread our risk, that’s the beauty of insurance,” said Srinivasan.

The panellists also said the younger population was driving the growth in insurance sector because of its higher awareness level. Online sales are also increasing.

With six insurance companies getting listed on the bourses in the past year and a half, CEOs felt that there was a greater need to educate investors and analysts on the nature of their business and how to value it.

“As more and more of us get listed, there is a huge job for us to educate the retail investors,” said Chaudhary.

Vaidyan said it was a challenge in educating analysts about the nature of the business because reinsurance is a B2B business.

Public sector insurers also highlighted that there was a perception difference between them and the private sector players.

Srinivasan said there was an anti-public sector bias in the market. “It is wrong to paint all public sector companies with the same brush,” he said, adding in insurance, government interference was much lesser than in banking.

Basu felt that the market is ownership agnostic. “Corporate governance or the manner in which companies are run, is very important. So the market is not looking only at ownership, it is only one of the factors,” he said.