An Analytical Study On Indian Health Insurance Sector And Its Sustainability

An analytical study on Indian health insurance sector and its sustainability 1
An analytical study on Indian health insurance sector and
its sustainability
Bhargav Pandya*
Mobile: 9879644804
Email: bhpandya1@gmail.com
Ruturaj Doshi*
Mobile: 9429484348
Email: doshirutu@gmail.com
Siraj Bloch*
Mobile: 8128197155
Email: sirajbloch@gmail.com
*Assistant Professors | Faculty of Management
Marwadi Education Foundation’s Group of Institutions
Rajkot –Morbi Highway, Near Gauridad, Rajkot-360003 Gujarat

Abstract
Health insurance sector in India is going through a drastic transformation with the advent of
new players into the market and has become quite competitive with rising awareness among
the insured. This research paper intends to highlight the performance of health insurance sector
during the last seven years. The basic objective of the research paper is thus to offer an insight
into the growth pattern and overall scenario of the health insurance prevailing in the country.
Research is based on secondary data published by Insurance Information Bureau for the period
2003-2010.
Premium collection has grown by 42% on year on year basis. Compounded annual growth rate
for no of policies is 20.35%. No of members has grown by 36.84% percent. Results are
analyzed using t statistics. Results of t statistics prove that more than 40% growth in premium
and more than 20#% growth in no. of policies are statistically significant and 25% growth rate
in number of members is not statistically significant. Finally, this paper also discusses
innovative steps taken by regulatory bodies to create level playing field for all the players which
will result in to further consolidation of the market.
Key words: Health insurance, Premium, policies, claims

Introduction
Over the last 50 years India has achieved a lot in terms of health improvement. But still India
is way behind many fast developing countries such as China, Vietnam and Sri Lanka in health
indicators (Satia et al 1999). In case of government funded health care system, the quality and
access of services has always remained major concern. A very rapidly growing private health
market has developed in India. This private sector bridges most of the gaps between what
government offers and what people need. However, with proliferation of various health care
technologies and general price rise, the cost of care has also become very expensive and
unaffordable to large segment of population. The government and people have started
exploring various health financing options to manage problems arising out of growing set of
complexities of private sector growth, increasing cost of care and changing epidemiological
pattern of diseases.
The new economic policy and liberalization process followed by the Government of India since
1991 paved the way for privatization of insurance sector in the country. Health insurance,
which remained highly underdeveloped and a less significant segment of the product portfolios
of the nationalized insurance companies in India, is now poised for a fundamental change in
its approach and management. The Insurance Regulatory and Development Authority (IRDA)
Bill, recently passed in the Indian Parliament, is important beginning of changes having
significant implications for the health sector.
The privatization of insurance and constitution IRDA envisage to improve the performance of
the state insurance sector in the country by increasing benefits from competition in terms of
lowered costs and increased level of consumer satisfaction. However, the implications of the
entry of private insurance companies in health sector are not very clear. The recent policy
changes will have been far reaching and would have major implications for the growth and
development of the health sector. There are several contentious issues pertaining to
development in this sector and these need critical examination. These also highlight the critical
need for policy formulation and assessment. Unless privatization and development of health
insurance is managed well it may have negative impact of health care especially to a large
segment of population in the country. If it is well managed then it can improve access to care
and health status in the country very rapidly.

Health insurance as it is different from other segments of insurance business is more complex
because of serious conflicts arising out of adverse selection, moral hazard, and information gap
problems. For example, experiences from other countries suggest that the entry of private firms
into the health insurance sector, if not properly regulated, does have adverse consequences for
the costs of care, equity, consumer satisfaction, fraud and ethical standards. The IRDA would
have a significant role in the regulation of this sector and responsibility to minimise the
unintended consequences of this change.
Health sector policy formulation, assessment and implementation is an extremely complex task
especially in a changing epidemiological, institutional, technological, and political scenario.
Further, given the institutional complexity of our health sector programmes and the pluralistic
character of health care providers, health sector reform strategies in the context of health
insurance that have evolved elsewhere may have very little suitability to our country situation.
Proper understanding of the Indian health situation and application of the principles of
insurance keeping in view the social realities and national objective are important
Why health insurance?
The reasons for health insurance-based services include:
 In the mid 1980s the healthcare sector was recognized as an industry. Hence, financial
institutions started funding while the government reduced import duty on medical
equipments and technology.
 Socio-economic changes: with the rise of the literacy rate, increasing awareness
through media channels’ deep penetration, contributed to greater attention paid to
health.
 Brand development: many family-run businesses have set up charity hospitals, and by
lending their name to hospitals, companies developed good market images.
 Extension to related business: some pharmaceutical companies like Wockhardt and
Max India have ventured into this sector as it is a direct extension to their work
(Nagendranath and Chari, 2002).

Third party administrators (TPAs)
Third party administrators are insurance intermediaries who undertake the entire administration
of health plans for insurance companies. Apart from settling claims, TPAs offer customer
service and technical support. The IRDA organization recently published draft regulations
(Bhat and Babu, 2003); that is, TPAs will:
 be allowed to enter into agreements with more than one insurer for reducing health
insurance service costs, but as TPAs they are barred from becoming directors of an
insurance company, insurance agents, or an intermediary;
 be required to start with a minimum working capital of Rs1 crore (minimum amount
required to run the business as TPA according to IRDA guidelines);
 renew their licenses three yearly through IRDA;
 have to maintain and report to IRDA on transactions carried out on behalf of the
insurer. But this would not include trade secrets, policyholders’ personal details;
 understand IRDA’s code of conduct for TPAs, refraining them from trading in
information, submitting wrong information to insurers and advertising without prior
approval of the insurer among other things; and
 have to ensure staff undergo a minimum three-months training in the field of health
insurance and have access to competent medical professionals.
The TPA has to spell out the scope of services that it will deliver within its agreement with an
insurance company. The TPAs facilitate cashless health processes for their customers and offer
back-up services to the insurance companies. There are 23 licensed TPAs but only 11 operate
because they failed to fulfill their obligations towards consumers. The IRDA has expressed
clearly the rationale behind licensing TPAs:
It is expected that, with the benefits of cashless services being fully appreciated by the
insured . . . health insurance would get popularised. In addition, with the onus of service shifting
from the insurer to the service provider, access to health services should become that much
easier – thereby giving a quantum jump to the spread of health insurance (Rao, 2003).
The TPAs organize healthcare providers by establishing networks with hospitals,
general practitioners, diagnostic centres, pharmacies, dental and physiotherapy clinics, among
others. The agreement between TPAs and healthcare organisations includes monitoring and
collecting documents and bills. Documents are audited, processed and sent to the insurance
companies for reimbursement. The TPAs manage claims, get reimbursements from the

insurance company and pay the healthcare provider. The TPAs have in-house expertise
including clinicians, hospital managers, insurance consultants, legal experts, information
technology professionals and management consultants. By bringing all these elements “in-
house” they are able to contain costs. The introduction of TPAs has not been smooth, however,
and they receive complaints. Until reliable data across different diseases in India are available,
TPAs will be limited to mainly large urban populations (Rao, 2003).
Changing attitudes – from self-centric to consumer oriented
Medical costs are running into hair-raising amounts and so quality health care makes this a
seller’s market. Currently, two-thirds of India relies on private sector health insurance, which
accounts for 83 per cent of total health expenditure. Until recently, Mediclaim held the health
insurance monopoly in India, which was more self- than consumer-centric. It treated every
claim with characteristic bureaucratic suspicion, paying only upon submission of the bill
(Nagendranath and Chari, 2002).
The global comparison
The data shown in Table VII indicate the status of selected Asian countries, with
reference to their national incomes and health expenditures in public and private sectors. Data
show the need for insight into health care expenditures of those countries and also the steps
taken to improve the health status of their people.
Overall, India still has a low insurance penetration (1.95 per cent) that makes it 51st
in
the World. India, on the other hand, boasts a saving rate of around 25 per cent per capita
income, while less than 5 per cent is spent on insurance. Public health investment has been
comparatively low and specialists recommend an increase in public health expenditure from
the present 0.9 per cent of GDP to 2.0 per cent in 2010. However, the quantum suggested is
too little and late. It falls far short of the 5 per cent of GDP that has been a long-standing
requirement for health improvement recommended by the WHO decades ago. Moreover, it is
projected that public expenditure in 2010 will be 33 per cent of total health expenditure – up
from the present 17 per cent. But even 33 per cent is lower than the average of any region in
the world today. India would continue to be one of the most privatized health systems in the
world even in 2010 (Gupta, 2005).

Research Methodology:
This research paper aims at analyzing the recent performance of health insurance sector in
India. Thus basic research problem is to analyze and comment on the recent performance of
health insurance sector in India. Research is analytical and descriptive in nature. Secondary
data are drawn from health insurance data report published by Insurance Information Bureau.
The study is based on the secondary data for the period 2003- 2010.
Research objectives
 To analyze the progress of health insurance in India in terms of no. of polices issued,
no. of members covered and number of claims settled., issued
 To analyze the growth pattern of premium paid, claims paid and claims paid ratio.
 To analyze the sustainability of the growth in Indian health insurance sector

Chart -1
Source: Health Insurance Data Report 2009-10
There has been a significant growth in the no. of polices during the period 2003-2010. It has
grown from 2265451 to 6884687 witnessing 203.9% increase during the last seven years. This
proves that health insurance sector in India has grown significantly over the years.
Chart-2
22 20
38
31
37
45
68
2003-2004* 2004-2005* 2005-2006* 2006-2007* 2007-2008* 2008-2009* 2009-2010**
0.00
1000000.00
2000000.00
3000000.00
4000000.00
5000000.00
6000000.00
7000000.00
8000000.00
Number of Policies
83 89
163 179
241
327
548
0.00
10000000.00
20000000.00
30000000.00
40000000.00
50000000.00
60000000.00
2003-2004* 2004-2005* 2005-2006* 2006-2007* 2007-2008* 2008-2009* 2009-
2010**
Number of Members

As depicted in the chart-2 no. of members having health insurance has increased from 8361629
in 2003-04 to 54893453 in 2009-10 showing 556.5% increase during this period.
Chart-3
Chart-3 reveals that premium collection has grown from Rs. 944 crores in 2003-04 to Rs. 7803
crores in 2009-10 which indicates the growth of 726.6 % during the period.
Chart -4
944 987
1947
2820 2758
3976
7803
0.00
1000.00
2000.00
3000.00
4000.00
5000.00
6000.00
7000.00
8000.00
9000.00
2003-2004* 2004-2005* 2005-2006* 2006-2007* 2007-2008* 2008-2009* 2009-2010**
Premium(in Crs.)
0.83
0.96
0.91
0.78
1.05
1.03
0.96
0.00 0.20 0.40 0.60 0.80 1.00 1.20
2003-2004*
2004-2005*
2005-2006*
2006-2007*
2007-2008*
2008-2009*
2009-2010**
Claims Paid Ratio %

Chart-4 depicts that claims paid ratio has remained around 1 on an average during the last seven
years.
Chart -4 & 5
Gross premium underwritten (player wise)
Gross premium underwritten grew by 33% as a whole category, which is very much high, but
at the same time percentage changes in the individual players (major players which is more
than 80%) is maximum 1%. It shows that as an category the gross premium underwritten grew
by 33% not because of any individual player but because of total category grew and with that
the premium also grew. That is the indicator that the overall category grew is the single driver
0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%
New India
National
United India
Oriental
Star Health & Allied Insurance
Apollo MUNICH
Other small players
2011
2010
2010
2011
0
2000
4000
6000
8000
10000
12000
Gross premium underwritten Grew by 33%

for the players which is natural. There is not major contribution of any of the players to grow
the category. They are growing because of they are with the flow, otherwise all player are
performing equally.
Table-1 Descriptive Statistics
Variable Mean Standard
deviation
Standard
error
Variance
No. of policies 18072350.33 9281363.078 3789100.61 86143700584665
No. of members 18072350.33 9281363.078 3789100.61 86143700584665
Premium 3381.833333 2383.214083 5679709.367 972.9430753
Claims paid ratio 0.948333333 0.097039511 0.039616214 0.009416667
Hypotheis-1
Ho: µ>20% No. of policies has grown by more than 20% on CAGR basis
Ha: No. of policies has grown by more than 20% on CAGR basis
Hypotheis-2
Ho: µ=25% no of members has grown by 25% on CAGR basis
Ha: µ ≠25% no. of members has not grown by 25 % on CAGR basis.
Hypotheis-3
Ho: µ>40% Premium has grown by more than 40% percent on CAGR basis
Ha: Premium has not grown by 40% percent on CAGR basis
Table-2 t-Statistics
Variable
Null
Hypothesis d.f. =n-1
critical
value
t calculated
value Decision Conclusion
No. of
policies
Ho: µ>20%
5, one tail
test
2.015 0.0239
Accept
Ho
No. of policies has
grown more than
20% on yearly
basis
No. of
members
Ho: µ=25%
5, two tail
test
2.571 21.80311
Reject
Ho
Average growth
rate in no of
policies is not
equal to 25 % .
Premium Ho: µ>40%
5, one tail
test
2.015 0.114298777
Accept
Ho
Premium has
grown by more
than 40% on
yearly basis.

Interpretations
Table-2 calculations show that there has been more than 20% percent growth in no. of policies
on CAGR basis and the result is not statistically significant. It also shows that CAGR growth
in no of members is statistically significant where as growth in premium is found to be
statistically insignificant.
Innovations in Health Insurance
We as Indians spend about 80 per cent of all health expenditure in the country from our personal
resources. Hence the importance of adequate planning for health contingencies cannot be
overemphasized especially, given the steep escalation in healthcare costs, expensive health
technology and pharmaceuticals. With increasing demand, the health insurance industry has
come up with innovative products to enable policyholder to plan comprehensive protection
against health eventualities by combining hospitalization indemnity products with
supplementary covers or additional policies to meet specific needs of the policyholder. There
are products available that provide Daily Hospital Cash benefit in the form of fixed daily
allowance which could be used to cover the incidental costs associated with hospitalization
(like travel and stay costs of an attendant). These benefits are available either on standalone
basis or as optional component of a packaged health insurance policy.
Personal Accident policies, which can again be availed on standalone basis or as part of
packaged product with health insurance, are also a useful supplement to the hospitalisation
indemnity products. Most insurance companies offer critical illness benefit products that
provide a lump sum amount on the diagnosis of specified dreaded diseases like cancer, heart
attack, coma or major organ failure.
While these diseases may be quite infrequent and a one-off occurrence, their impact can be
both emotionally and financially devastating on the household where such illness occurs.
Critical Illness products that are available as standalone or as add-on/riders to life and non-life
policies or as a component of a packaged health insurance product could supplement the
indemnity product and make the health insurance cover comprehensive.
Most of the above mentioned products are now being offered by insurance companies for a
period longer than a year. Many of these products have features requiring the insured to
undergo regular health check ups and some of them even provide round the clock suggestive
medical advice over phone and through e-mails. Some insurance companies have also created

dedicated platforms which provide necessary health information to their policyholders through
specifically designed web portals.
In addition to the above, there are many products based on disease management platform. These
products are primarily targeted at persons who may be already suffering from chronic diseases
like Diabetes. Such products include cover for medicines and laboratory tests on OPD basis, in
addition to other covers under the product. This category of products may develop further in
the days to come as a useful supplement to the hospitalization indemnity coverage for a person
who is affected with such
a chronic ailment.
There are also riders now available that, for a fixed upfront premium, allow free dental or OPD
consultations from the provider network of the insurance company and thus cover dental
treatment or OPD treatment in a limited way. Although no medicines or investigations are
covered in this rider, it is one step towards coverage of OPD costs.
Another option now available is the top-up or high-deductible cover for individuals (and
families) who are already covered by their existing insurance companies or employers with a
sum insured limit (deductible). Such individuals can buy the top-up covers that provide them
coverage beyond the deductible chosen.
All the above products, with the exception of Personal Accident products, only provide
coverage within India. When travelling out of India, yet another tier available for protection
against health contingencies is Overseas Medical Insurance policies, which are sometimes
packaged as Overseas Travel plans by including other components like loss of passport, loss
of baggage, etc. In days to come, industry may witness products offering medical coverage
targeted to international travelers with coverage extending beyond travel and not limited
/restricted to medical emergencies and accidents.
In fact the insurance companies are deliberating on products targeted to international travelers
sans travel components. Though most of the health policies offered now are annually
renewable, insurance companies are innovating ways to establish long term arrangements with
the policyholder by offering long term policies or by incentivizing timely renewals, free health
check-ups, loyalty vouchers for OPD covers, etc.

In the days to come, the market may also see innovative health products covering alternative
medical treatments like AYUSH, since the government has been emphasising the need for the
insurance sector to extend the coverage to indigenous systems of medicine.
Also foreseeable in near future is incorporation of savings element in the health indemnity
covers for younger policyholders who can avail tax advantages now and can build up health
protection for old age.
The innovative spirit of the health insurance industry has blurred the lines between life and
non-life covers. Recently, the Authority has received proposals to consider offering pure term
life insurance products along with health insurance products under the umbrella of a single
product. The Authority has allowed the same as a product class within a broader policy
framework of ensuring an informed choice and effective policy service to the policyholders. It
is envisaged that the combo-products could enhance the penetration of personal lines of
insurance business with a wider product choice to policyholders. While IRDA adopts a
business facilitative approach, it is expected that all insurance companies would put in place
prudent market conduct practices and operational procedures for protecting the interests of
policyholders.
A few insurance companies are also designing niche products with the concept of covering “no
admissible expenses”, which generally form part of standard exclusion in indemnity
hospitalization policies. There are no limits to insurance companies experimenting with
innovative product designs.
However, below poverty line (BPL) families and low income, small town population, are yet
to be targeted/tapped significantly by the insurance industry to provide coverage to those who
are in dire need of health insurance. In fact, these segments could actually be used to increase
insurance penetration in the country.
As a measure to reinstate the Authority’s agenda of improving insurance coverage to weaker
sections of the society, IRDA has conceptualized a composite standard product to provide a
comprehensive package of insurance covers to persons belonging to economically weaker
sections in rural and urban areas. The standard product could become the primary instrument
for fulfillment of the rural and social obligations of insurance companies under the Insurance
Act, 1938. It is envisaged that the product will have defined options and levels to provide choice
and flexibility to customers to cater to individual needs.(IRDA annual report,2009-10)

Sustainability Check
Chart-6
Source: IRDA Annual Report 2009-10
Chart-6 depicts that health insurance premium has grown significantly over the period of 2005-
10 indicating the wider proliferation of health insurance across the country. It also implies that
no of insured people has increased as witnessed in the jump in the premium collection on year
on year basis. Thus, health insurance sector has demonstrated sustainable growth in its
premium collection following the increase in the no. of insured people.
Chart-7
8305
6625
5125
3209
2222
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
2009-10 2008-09 2007-08 2006-07 2005-06
Growth of Health insurance Sector 2005-2010
0
1000
2000
3000
4000
5000
6000
2009-10 2008-09 2007-08 2006-07 2005-06
Private Insurers
Public Insurers
Standalone Health Insurers
Sector wise growth of Insurers 2005-2010

It is quite evident from the chart-7 that public insurers have witnessed quantum in jump in
their growth for the period 2005-10 as compared to private and standalone insurers. It implies
that public sector has been playing a crucial role in providing health insurance cover the wider
section of the population witnessing sustained increased in the share in the health insurance
market.
Standalone Health Insurers are the new players register under the standalone companies.
Though they follow the similar process and protocols as private and public players, it has
different set of rules for them. They were not present in the market till 2006-07, but even after
getting in to business they have follow the same suite. So entry of standalone players has no
direct effect on health insurance market.
Chart-8
The private players are very much aggressive in their marketing strategy as its share of voice
in media is clearly noticeable. Chart-8 highlights that even at the current stage (2009-10) public
players are leading the market. Low market share in the existing market place guide the private
insurers to focus on grabbing the market share from public insurers. In that race, private
insurers lose the opportunity lies apart from this set of population.
Paragraph
27 %
60 %
13 %
Private Insurers
Public Insurers
Standalone Health Insurers
Share of Health Insurers 2009-10

Chart-9
Source: National Sample Survey Organization 60th round 2010-11
Chart 9 indicates the very crucial insight of the current health insurance market. As on 2010-
11 Indian health insurance sector has covered merely 15 % of the total population under any
health insurance scheme. Out of which 12.5 % are covered under any Government Health
Insurance Schemes. That means 83 % population is untapped till now. That 85 % is the key to
sustainable growth of Indian health insurance sector.
Instead of fighting for market share in 15 % of population private players and standalone
players should focus on the 85 % of the population which is untapped. That means out of 120
crore Indian population private players and standalone players are focusing on 18 crore
population.
The 15 % population which is covered under any health insurance policy/scheme is highly
penetrated segment with the people who has more than one health insurance policy per head.
So from the future perspective, that is not the prospective segment for health insurers. Rather
than expanding market share for themselves companies should focus on expanding the market
or developing the whole category so that the growth sustain for long time. Else they will end
up making lose for themselves. Currently they are fighting to grab customers from each other
that means gaining a customer for one is one customer lose for the other. Either customer buys
multiple policies or replace the existing policy can fetch the business for any player. That is
not at all healthy competition, infect it’s lose-lose situation for all public and private players.
Of course the task of market expansion and category development is not easy task but the key
players or the market leader have to take this initiative. That initiative will defiantly pay off for
them as they will get first mover advantage in the new segment.
85 % 15 %
85 % 15 %

Total number of players in health insurance sector in India is 21 as on March 2011. Out of
which four are public sector units and rest of them are private and standalone players.*
Source: www.irda.gov.in
According to the latest data release from IRDA, there are 21 insurers in Indian Health Insurance
Sector. Out of which four are public units and rest is private players. The four public units
cover majority of the market (83%) because of Government Health Insurance Schemes, while
rest of the market (17%) is divided among all private players. But the shocking fact is, 21
national and multi-national players are fighting for mere 15% of market, while rest of the
market is untapped.
Sustainability: Way forward
- Taping 85%
- Govt. scheme

Conclusion
Indian health insurance sector has witnessed a remarkable growth during the last few years
which is manifested in the quantum jump in the premium collection and no of policies As per
the data released by National Sample Survey Organization 60th
round 2010-11 less than 15 %
of the population is covered under some health scheme. 2.2% of the population is covered under
private health insurance. In the wake of this data, there is a tremendous opportunities for health
insurance companies to tap untapped market of health insurance. Taking cue from this data,
health insurance companies have stated offering innovative products to cater to peculiar needs
of the people which have resulted into the significant increase in the no of members insured
over the years. Besides this, IRDA, as a regulatory watchdog has also taken steps to popularize
and facilitate varied health insurance schemes by issuing necessary guidelines and circular
from time to time. Despite this, health insurance penetration rate is not adequate looking at the
large mass of the population. It still remains a big challenge for the marketers and regulators to
cover the large section of the population through affordable and commercially viable health
insurance schemes.

References:
 Bhat, R. and Babu, S.K. (2003), Health Insurance and Third Party Administrators:
Issues and Challenges, Indian Institute of Management, Ahmedabad, India.
 Gupta, A.S. (2005), The Big Squeeze: Info Change News and Features, Centre for
Communication and Development Studies, Pune.
 Nagendranath, A. and Chari, P. (2002), “Health insurance in India – the emerging
paradigm”, a seminar on the emerging issues in the Indian insurance sector, September,
IIFT-School of International Business Management, New Delhi.
 Rao, C.S. (2003), Annual Report 2002-03, IRDA, Hyderabad.
 Gupta Hima (2007) The role of insurance in health care management in India ,
International Journal of Health Care Quality Assurance, Volume 20, Issue 5
 National Sample Survey Organisation 60th
round (20010-11), Ministry of Statistics
and Programme Implementation of the Government of India
 IRDA Annual Report, 2009-10

An Analytical Study On Indian Health Insurance Sector And Its Sustainability

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