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Healthcare Market Review

Indian health insurance – a major opportunity?

Healthcare providers have expanded their operations considerably and stand-alone health insurance products are now sold by general insurers and life insurers, as well as by new specialist health insurers. The third party administrator (TPA) landscape has also undergone noteworthy changes in the last year.

The need for health insurance

Health insurance penetration in India is low, with only 0.5 per cent of the one billion-plus population being covered by private health insurance. Around 8 per cent of the population are covered by government schemes, leaving over 90 per cent of the population with no health insurance cover.

Hospitalisation remains a major cause of indebtedness across all socio-economic sectors of society, with 50 per cent of those hospitalised forced to take loans or sell assets to meet their healthcare bills. Whilst healthcare costs in India account for 5 per cent of GDP, 80 per cent of this is private out-of-pocket spend. With hospitalised Indians spending almost 60 per cent of their annual expenditure on healthcare, the need for good quality, affordable health insurance is already high.

Increased urbanisation, growth in real incomes and the increased prevalence of lifestyle diseases are all factors that are expected to contribute strongly to the demand for healthcare and health insurance in the next decade.

The expansion of healthcare provision

In 2005, there were only a handful of healthcare providers of notable size, including Apollo, Fortis, Max and Wockhardt. There are now a plethora of other providers in the market, all setting up world class tertiary healthcare facilities.

Large investments are being made to set up greenfield hospitals in many towns and cities across India. One of the new generation of healthcare providers has recently raised funds to expand its chain of hospitals through an initial public offering (IPO), whilst another has announced investments of Rs7.5 billion (US$190 million) in the next four years. Investments in excess of US$2 billion have been committed by a number of leading business houses over the next five years to develop hospitals, medi-cities, and other healthcare facilities. Hence the necessary healthcare infrastructure required for a vibrant health insurance sector to thrive is being put in place.

The growth of health insurance

Health insurance is now sold by general insurers, life insurers and stand-alone health insurance companies in India. Whilst health insurance figures are not reported separately for life insurers, health insurance premiums written by the general and health insurance companies are reported and the figures make interesting reading Health insurance premiums exceeded Rs32 billion (US$800 million) in the financial year ending on 31 March 2007 (FY2006), an increase of 44 per cent on the previous year. For most of the private general insurance companies, health is one of the fastest growing lines of business. Growth in health insurance premium income in the last year ranged between 39 per cent and 686 per cent and many general insurers have made statements regarding the strategic importance of health insurance as a line of business for them.

Stand alone health insurers

The market has also witnessed the entry of two specialist health insurance companies in the last year.

Star Health & Allied was the first specialist health insurer to commence operations in India in April 2006. The company recorded gross written premiums of Rs224 million (US$6 million) in FY2006, its first year of operation. To date, it has introduced an array of segment-focused products as well as traditional health covers. It is reported to be practising strong and innovative ‘gate keeping’ practices, apparently resulting in a low loss ratio.

Apollo DKV, a joint venture between India’s largest healthcare provider, the Apollo Group, and the German health insurer, DKV, is the second stand-alone health insurer to open its doors in India, launching in August 2007. It is thought likely that the company will leverage the strength of the leading TPA, Family Health Plan (FHP), which is part of the Apollo Group, in the joint venture operations.

There are positive signs that some of the other major health insurers from overseas, such as Aetna, CIGNA and BUPA, as well as other multi-national life and general insurance companies, are also interested in entering the Indian health insurance market.

Third party administrators

Unique to the Indian marketplace, TPAs were established as a result of regulations introduced in 2001 and they provide administration activities for insurers, such as the admission and settlement of claims, as well as establishing provider networks of hospitals that policyholders can utilise. Many TPAs provide a wider variety of services and have moved beyond the remit that they were originally intended to fulfil. There are now 26 TPAs in operation, though the top three have more than 50 per cent share of the market.

Interestingly, as insurers have started looking harder at their claims experience, some of them have realised that in using a TPA for the admission and settlement of claims, they have outsourced the very activity that will determine their profitability. As a result, there are indications that a small number of the leading life and general insurance companies are intending to establish their own in-house claims operation.

Another recent development in the market is that a number of insurers or reinsurers have taken stakes in some of the TPAs. Munich Re and Swiss Re have taken stakes in Paramount Healthcare and TTK Healthcare respectively, whilst Reliance General Insurance has acquired a majority stake in MediAssist, through a captive private equity fund. The purchase of these stakes has led to the demise of some TPA-insurer agreements, as public sector insurers, in particular, have become concerned that TPA stakeholders may get access to their claims data. Clearly this is a quickly altering landscape and it will be interesting to see how the TPA market develops in the coming years

Conclusion

The economic changes witnessed in India in the last few years are starting to have a major impact on both the provision of healthcare and the availability of health insurance. There is a unique opportunity to capture market share, whilst the market is relatively young and in a dynamic phase of development for early entrants. The insurance companies that offer innovative consumer-friendly products, whilst concentrating on building robust underwriting and claims ‘gate keeping’ protocols for their health insurance business, are likely to be the winners.

Further Information

Melanie Puri
+91 (0) 124 432 2811
melanie.puri@watsonwyatt.com

Anuraag Sunder
+91 (0) 124 432 2855
anuraag.sunder@watsonwyatt.com