Wealth creation - Innovation is the key

The health insurance industry is plagued by the problem of non-viability. The claims paid are in excess of the premiums collected annually. This has led to multiple problems.

Insurers are pretty non-committal about the premiums they charge. A minor deviation in the health parameters leads to levying of ‘significant extra’ premiums. Till date many prospective clients look at health insurance with suspicion. Will my claim be settled when the need arises? Will they pay me the full amount of the actual expense incurred on treatment? Etc.

The sheer details or terms & conditions (if you please) associated with the products are nothing short of a minefield of “subject to-s”. Your claim will be paid if the illness is discovered after a period of ‘x days’ from availing the cover and if you survive for at least ‘y days’ from the date of diagnosis. This is after you have undergone a proper underwriting procedure prescribed by the insurer. You won’t be blamed for thinking that this is a business to make you pay the premiums but find reasons to deny claims.

For medical service providers, the practices are ill-defined with very little standardization across the board. This applies to costs and procedures, both. Most private medicos and hospitals charge the patient differentially depending on whether she has a medical insurance cover. If the patient is covered, the charges are usually higher. It’s the law of the jungle at work. If the payment is going to be made by the insurer, then, it is almost as if the patient doesn’t care about the charges. The service provider takes advantage being well aware of the nuances of the insurers’ practices. This is a rip-off not only affecting the insurer, but, eventually all the buyer’s of insurance – present and future.

I’d like to quote from the IRDA Annual report of 2009 (pg 34) – “the incurred claims ratio (net incurred claims to net premium) of the general insurance industry increased marginally to 86.30% in ’08-’09 for 84.88% in ’07-’08. The increase was reflected in both public and private insurers……The health segment …..stood at 105.95% in ’08-’09 as against ….141.02% in ’06-’07. However for the public insurers, this ratio increased to 116.60% in ’08-’09 from 112.36% in ’07-’08…..for private insurers this ratio …76.84% in ’08-’09…”

Public & private insurers have significantly different roles, responsibilities and business practices. This shows in their performance. Availability, affordability and sustainability of health care, a key infrastructure, is critical for an emerging economy.

Health care is a huge business opportunity which can be driven by innovation. Innovation can deliver the objectives and provide win-win solutions for insurers, insurance buyers, health care providers and investors who provide the risk capital. We will discuss some instances of innovation which are at work and those that can make a bigger difference.