The promotion of Health Insurance TPA of India Ltd. by five government-owned insurers to act as a captive health insurance claims processing agency has led to questions about the legality of the investment by insurers.
But the insurers are not forthcoming in answering them.
According to Health Insurance TPA's website, the company is a joint venture of public sector non-life insurers - Oriental Insurance, National Insurance, New India Assurance, United India Insurance, and General Insurance Corporation of India.
"Section 27 B (5) of the Insurance Act prohibits an insurer from investing more than 10 percent of his assets or 10 percent of the subscribed share capital of the company whichever is less," D. Varadarajan, supreme court advocate specialising in company/competition/insurance laws told IANS over phone from New Delhi.
Varadarajan also wondered whether the Insurance Regulatory and Development Authority (IRDA) had given its nod to the five insurers to incorporate Health Insurance TPA of India.
If IRDA had given a sanction, then how was that given as the law is clear on this aspect, he said.
Speaking to IANS earlier, G. Srinivasan, chairman-cum-managing director of New India Assurance, said GIC will hold five percent in the proposed Rs.200 crore equity capital and the balance 95 percent will be shared equally between the four primary insurers.
Currently, Health Insurance TPA has a paid-up capital of Rs.10 crore.
Going by the provision of the Insurance Act, it is clear that the floating of a joint venture company by the five insurers is ultra vires, Varadarajan said.
"Perhaps the public sector insurers might have obtained an approval from the regulator to breach the 10 percent cap mentioned in the Act," K.K. Srinivasan, former IRDA member, told IANS.
Both he and Varadarajan categorically said that the provisions of the Insurance Act cannot be relaxed by regulations or circulats or guidelines or specific orders by IRDA.
They said as per law insurers cannot float claims processing company or any other intermediary company even for purely of captive purpose.
According to Varadarajan, the provisions of the General Insurance Business (Nationalisation) Act, 1972 mainly deals with the merger of 106 insurers to form the four general insurers and is not connected with the issue on hand.
He said IRDA will be restrained and constrained to heed to the request of government owned non-life insurers to grant licence to Health Insurance TPA.
According to him, if the four insurers recruit required experts and start processing health insurance claims in-house then there will not be an issue.
An email sent to Asha Nair, director and general manager, United India Insurance, by IANS seeking clarification on the issue remained unacknowledged.
Meanwhile, the Competition Commission of India (CCI) has ordered a probe by its director general against General Insurers'(Public Sector) Association of India (GIPSA) and other public sector non-life insurers for alleged anti-competitive practices.
The fair trade regulator also said the move of the government owned non-life insurers was against the prevailing world wide practice to keep claims processing agency independent from the insurance companies.
It was also alleged that the GIPSA - an unregistered body - is providing a platform to the insurance companies to share sensitive information with each other, which not only affects competition in the market, but also provides space to them for exchanging information regarding claims ratio, marketing efforts, terms and condition of third party administrators (TPA) etc.
According to CCI, the insurers have floated in house TPA to reduce their claim ratio, which may potentially result into rejection of claims on ad-hoc basis.
As per IRDA, there are 33 licensed health insurance TPAs in the country and the Health Insurance TPA is yet to be licensed by IRDA.
"It is premature to speculate on the likely effect of the new TPA in preventing or distorting competition or abuse of dominance by the four PSU insurers through the vehicle of new TPA," Varadarajan said.
According to him, CCI should also look into a related matter -- the competitive cost structure of treatment given to the public by the hospitals under cashless and the cash down facility.
He said the cashless category, those having a health insurance policy and hospital bill is directly settled by the insurer, are fleeced by the hospitals.
