High premiums, claims disputes create disquiet in insurance landscape

Net incurred claims to net earned premium (claims ratio) of the non-life insurance industry stood at 82.52 per cent during 2023-24, compared to 82.95 per cent in the preceding financial year, according to the Insurance Regulatory and Development Authority of India (Irdai) annual report. The ratio was even lower for the private sector.

 

The percentages cap a month of grim news worldwide, including the shocking case of the UnitedHealthCare CEO being shot dead in New York by a disgruntled health claimant. Health insurance is creating problems across the globe, including India.

 

Each rejected claim is increasingly becoming a minefield. The insured feel short-changed at both ends: a high premium and then an uncertain chance of claims being approved.

 

On premiums, the Irdai notes in its master circular that health insurance premiums should not be exorbitantly high. “The premium rate should be fair and not excessive and also provide value for money.” Both the Irdai (Insurance Products) Regulations, 2024, dated March 20, 2024, and the Master Circular on Irdai (Insurance Products) Regulations, dated May 29, 2024, make the same point.

 

These circulars make an additional point: when a policy is renewed, companies are supposed to offer the insured a choice. For every claim-free year, the insured should have the option to either raise the sum insured or pay a reduced premium. However, it is a safe bet that no insured has ever received such a pitch from agents.

 

As a result, there is growing disquiet that insurance companies are generating excessive premiums. Even Parliament has been stirred by this issue. During the winter session, a question was raised about insurance companies investing heavily in real estate or real estate investment trusts (REITs). The finance ministry replied that “private insurance firms have invested Rs 5,213.33 crore in REITs as on June 30, 2024, which is 0.24 per cent of private sector insurers’ assets under management.” As per Irdai norms, companies are allowed to invest up to 3 per cent of their total AUM in REITs or InVITs. While the data shows the companies are well within the limits, the MPs’ query reflects the prevailing public sentiment.

 

On claims, one of the issues could be rising management expenses for insurance companies. Irdai data shows these have increased to about 37 per cent of total costs, meaning that out of every Rs 100 provisioned as costs, only about Rs 60 remains to pay claims. This has prompted calls for higher foreign direct investment, as many insurance companies are undercapitalised.

 

Meanwhile, there is another issue on the hospital front. There are about 60,000 hospitals in India, and insurance companies face challenges accepting claims from a large percentage of them at face value.

 

The Ayushman Bharat Digital Mission

 

This year, the government set up the National Health Claims Exchange under the Ayushman Bharat Digital Mission. The platform aims to provide “streamlined and standardised health insurance claim processing.”

 

A critical aim of the platform is to improve the patient experience, allowing patients and their relatives to check the status of claims and reasons for rejection. Press notes about the platform state that health claim information will be shared among insurers, third-party auditors, healthcare providers, beneficiaries, and other relevant entities. This will enable “interoperability, machine-readability, auditability, and verifiability, making the information exchange accurate and trustworthy.”

 

As of August, 34 insurance companies had joined the platform. Third-party administrators have also onboarded it, but no hospital has yet done so. The website diplomatically notes that “approximately 300 hospitals are ramping up to start sending their claims on NHCX,” which, in plain terms, means none have joined so far.

 

Meanwhile, health insurance costs, driven by hospital inflation, are rising by over 10 per cent annually. Last year, the claimed increase was 14 per cent, meaning medical treatment costs this year are unlikely to compare with those of the next.

 

With their reducing headroom, insurance companies will likely become even more reluctant to pay claims. That is precisely what the Irdai data released this week indicates.