Introduction
Health insurance business, is today perhaps the most rapidly growing segment in the Indian non- life insurance market, possibly after crop insurance. The reasons are many; foremost being rising treatment costs in secondary and tertiary hospitals. Increasing number of insurance companies selling health insurance products and aggressive marketing by the private players has further popularised health insurance products. Further, mass health insurance schemes by various State Governments / Centre have played a vital role in popularising health Insurance in India. Rashtriya Swasthya Bima Yojana (RSBY) was an innovation with introduction of Smart Card and for the first time in India, there was a health insurance scheme at national level. The recently launched Ayushman Bharat – National Healthcare Protection Scheme or NHPS, touted as world’s largest healthcare programme aims to insure 40% of the population, providing coverage in respect of all pre-existing diseases with portability across all States and Union Territories. PM Modi’s focus on health insurance can take health insurance to every household – which so far was restricted to only the urban upper middle class and those in the formal service industry. This announcement has, in all probability not only resulted in increased awareness on health insurance but has, obviously also raised the expectations of the masses manifold, from Insurers and the State.
Innovations in Health Insurance
These development will surely spur health insurance demand, and therefore the market potential for the insurance industry. The insurance industry will surely try to seize the opportunity, with ‘innovative’ health insurance products. Insurers are coming out with new products at a fast rate. Some notable positive changes in Health Insurance are:
- Introduction of products providing coverage for Outpatient Treatment (OPD), which is usually an exclusion in hospitalisation type (Indemnity) policies.
- Global health insurance policy targeting High Networth Individuals (HNIs). Global policies provide coverage to the insured all over the world, thus treatment can be taken in any country, and with this policy, one also avoids the hassle of going for an additional ‘Overseas Mediclaim policy’ for a trip abroad. This product offers real benefits in terms of convenience and financing treatment costs. No doubt, the premiums are high, but premium being commensurate to the benefits, the insured does not mind paying higher premium. Despite, the benefits the market is slow to accept this product.
- Super Top-Up products, with high deductibles have helped insureds get higher coverage amounts at substantially lower premiums and have indeed brought value to the customers.
- An important innovation by a PSU General Insurance company, as part of the hospitalisation type is coverage in respect of insured donating his organ, which is still an exclusion in most other health policies.
- The same PSU GI Company, launched a Hospital Cash policy in 2015, where the Sum Insured (i.e the Daily Cash Benefit) for women (irrespective of age) is 25% higher than the actual Sum Insured offered to the male insured of same age (and same premium).
- Introduction of ‘Medical Second Opinion’ in hospitalisation type of policies, which provides coverage for taking expert’s advice on-line / telephonically / in person from anywhere in the world.
These features / coverages are being offered for the first time in Indian insurance history and can be termed as significant ‘innovations’.
However, now insurance companies have started offering new Health Insurance products in the market, which merely aim at making the insured feel good that he has some health insurance protection, while practically offering little protection. One such product is covering only a single disease. One has started coming across disease specific products (DSP) which provide cover against usually one illness like cancer or cardiac or diabetes, or hypertension or dengue, etc. Some of these products resemble Critical Illness covers that are usually on ‘Benefit Basis’, which means that the policy pays a lumpsum amount on diagnosis of disease (it may be noted that most of the policies would pay only if the diagnosis reveals a specific ‘stage’ of the illness, which is usually a later stage). So, by purchasing such DSP, the buyer of the policy ‘feels’ he has insurance protection. However when the contingency strikes, he can discover the policy would pay nothing, if the disease is at an initial stage or that disease is not covered at all in the policy. For example, in case of ‘Kidney disease’, the critical illness policy would pay only in case of ‘End Stage Renal failure’, or in case of ‘Burns’ the policy pays only when it is ‘Third Degree Burns’. So, if a person does not have a comprehensive type of ‘Hospitalisation’ policy, and has only DSP, he has no recourse in case of any non-included disease / injury afflicting him, or is of less severity than is defined in the policy; and he has to bear the expenses of treatment from his pocket. There are indemnity type Critical illness policies also in the market, which make little sense since mainstream hospitalisation type product is the first requirement for any insured, as the latter product provides a comprehensive protection and not against just a specific illness. Why shouldn’t the insured instead go for a Super Top-up policy with an underlying low Sum Insured hospitalisation type policy, thus ensuring adequate insurance protection?
Thus the DSP which the insured was sold with such conviction, remains a piece of paper!
What is the evidence?
Based on trends from few companies as well as anecdotal evidence, as industry wide data is not yet available, around 80-85% of retail health insurance premium comes from Mediclaim type indemnity type of policies followed by Package policy accounting for around 5-6% of total Premium and Hospital Cash Plan accounts for 3-4 % of total premium. Rest of the policies contribute very negligible amount of premium. The number of policies and incurred claims would be in same range.
This clearly indicates that customers are not impressed with critical illness product and the coverage it provides and rightfully so. So the case for DSPs is even more weak and against customer interests. As mentioned earlier, Critical illness products provide lump sum benefits. So if the sum insured selected was low, the insured could be severely exposed as the illnesses treatment costs can be very high.
There are indemnity type Critical illness policies also in the market, which make little sense since mainstream hospitalisation type product is the first requirement for any insured, as the latter provides a comprehensive protection and not against just specified illnesses.
Insurance data indicates that leave alone these DSP even the mainstream critical illness covers are not really popular among the individuals (families). This non- acceptance of Critical Illness covers among the insuring public is easy to understand. It is natural human psychology to think that nothing adverse, specially something as grave as cancer, or renal or liver failure can ever strike them or their family members, and this thought often prevents people from taking insurance covers like ‘Critical illness’. The possibility is too frightening to even contemplate which leads to failure to purchase. Most insurers would agree that this is a common underlying thought, which prevents people from purchasing such covers. A, DSP which is even more restricted than a critical illness cover, on a stand-alone basis, appears to be an impractical proposition and thus an eye wash, since it is not only one specified illness that can afflict a person. Any disease or accident has the potential to drain the family financially. So, shouldn’t a person be insured against many potential medical eventualities? Or shouldn’t a person have a comprehensive health insurance cover?
Some of DSPs like cardiac are on indemnity basis as well (meaning, the policy pays only when there is hospitalisation and the coverage is to the extent of actual expenditure). It is a reasonable question that when given the option for coverage for hospitalisation, any reasonably informed person would go for a ‘Mediclaim type’ policy which covers any disease / ailment (of course subject to usual exclusions ) including cardiac or any one illness. With IRDA Health insurance Regulations 2013 & 2016, the Regulator has ensured that all major exclusions get covered after four continuous years of policy, whether, the policy has been renewed with the same insurer or with different Insurers.
Does the DSP innovation have ‘customer’ as the focus??
So, it is pertinent to ask whether these disease specific insurance products (DSPs) have been designed with customer as the focal point? Are these products worth purchasing?
The basic reason why one purchases a health insurance cover is that if need arises, the treatment expenses, arising from a wide range of illnesses, gets financed by the insurance company in consideration of the premium and full disclosure. Now it is really perplexing as to how many DSPs would a person think of purchasing? Do the insurers intend to offer a bunch of 10 different health products to a customer, say a ‘Dengue’ policy, a ‘Cancer’ policy, a diabetes’ policy, a ‘Cardiac policy’, a ‘Malaria’ policy, a ‘TB’ policy’, and so on. Or in the case of Critical Illness policies, where is the insurance support if the disease has been diagnosed at an initial stage? Does the policy pay for diagnostics or for the treatment? The answer is clearly in the negative.
So, where is the customer interest in these products? Are her needs for comprehensive coverage being addressed? Is her need for medical expenses for a range of contingencies being adequately financed? If the answer is NO, then do these DSP constitute unjust enrichment or marketing gimmick of insurers? Do buying different policies for various specific body ailments make any economic sense to the buyer?
Do these innovations help Insurers?
Further questions arise on the need for such products from an insurer’s perspective. Those who have been involved in health insurance product development would have noticed that considerable amount of time and effort is spent in developing such products. Given that very few people buy such DSP type of products, it would be a long time before these products become popular. It is also not clear whether for example dengue specific product would be marketed in regions which are endemic with mosquito borne diseases? Or would a cardiac policy be marketed to all those with sedentary lifestyle? Or will these policies be marketed all over the country without any bias? If so, then the question is how many such policies have been sold? Of course, for the buyer it makes little economic sense and she would refrain from buying such policies until she is coerced or fooled into buying them, or may be when she knows beforehand that she would actually need that particular policy- a case of adverse selection which is detrimental for insurers.
In view of the above, it becomes clear that sustainability of such products is questionable. So a more pertinent question is why do insurance companies come out with these health policies despite clearly knowing the sales potential? Or do the insurers genuinely believe that such policies are the demand of the day and the market would just lap it up? What is interesting is to see how one insurer after another is coming out with such products. May be it is just a fad, and a quick way to gain attention in the market. Or maybe it is just the product numbers that the insurers care for ?
What is the Regulator’s Role?
What is somewhat surprising is the Regulator’s approval for these products. Its no longer the case that these are the early days of health insurance rush and the market can afford to have any type of health insurance product. This was the rationale in the earlier years when the health market was beginning to spurt and grow. The market has matured now and there is a considerable body of data showing the customers’ needs, type of products that command good consumer acceptance and reasons for same.
The regulator’s foremost duty is to protect the interest of customer. Is the customer interest protected by such products? Given the contours of the product discussed earlier, does selling these policies qualify as mis-selling?
In my view, very clearly, these products do not help the cause of customers. It is also questionable, whether a mere increase in the number of insureds or products, indicates the growth of health insurance? Does this in any way ensure adequate coverage to the unsuspecting customers? Insurance contracts are one of ‘Utmost Good Faith’ of both the parties. What utmost good faith is the insurer displaying when it markets and sells such narrow covers to the customers? May be the customer has satisfaction of having a health policy, but in reality the cover is so narrow that it becomes meaningless. Shouldn’t ‘customer utility’ be an important criterion for judging whether the product deserves to be in the market?
It is in such products that the role of the Regulator becomes more pronounced. Mere compliance with IRDAI Regulations on the content of policy does not justify an insurance product. There has to be a valid case for meeting customers’ needs too. This is particularly important in a market like India, where people have limited purchasing power to buy insurance products and the reputation of insurance industry in the eyes of people is very poor. Let not the industry’s reputation be put at risk by such products. Let us not forget that the ULIPs fiasco severely dented the reputation of the industry and the regulator.
Conclusion
In Indian context, it would make sense, if the insurers design policies which fulfil real customer needs and the regulator will have to make a choice whether this criterion is being fulfilled or is merely a marketing gimmick.
Innovation has to significantly add to customer welfare. What drives good innovation is the deep desire to meet the customers’ needs through value adding products and also to ensure that the credibility of the insurer and regulator is maintained. It has to address the needs of the people and fill gaps left by traditional insurance or Government support. Innovation, at the same time has to be such that the product provides protection to reasonable number of people. Mere window dressing with number of products with hardly any market acceptance is to be avoided so that people are not confused with large variety of products. Time has come for the regulator to see if this is happening and if not, weed out unwanted products. Regulator needs to seriously examine business projections made by insurer and compare with actual performance of the product. A certain number of years say 3-4 years can be given for the product to succeed otherwise it should be pulled out of the market. This is very important for a country like ours where the financial literacy and that too insurance literacy is very poor. Customers should not be confused with too many meaningless product choices.
Half-hearted commitment neither serves the customer nor the insurer. Insurers have to realise that they exist because the customers exist. The purpose of insurance is financing the healthcare needs of the customers. If that fails, customers are bound to reject it and it will only lead to an atmosphere of mistrust against the Insurer and industry. That is something we can ill afford!
Author
Rashi Yadav
Deputy Manager, The Oriental Insurance Co. Ltd, Delhi
Published : The Insurance Times, Decemeber 2018
