“Awareness is poor because insurance was not sold for years—it was bought”

Fali Poncha, chairman, International Reinsurance and Insurance Consultancy Services (IRICS), speaks to Moneylife’s Aaron Rodrigues and Sanket Dhanorkar on mediclaim, TPAs and other issues facing the health insurance industry

ML: How far has mediclaim come in India vis-à-vis the Western countries?
FP: It isn’t like there is much similarity with the Western countries, but our system is strictly reimbursement oriented; it is not healthcare or health monitoring. So therefore we talk only about protecting yourself against what you spent—which is a policy on a reimbursement basis, provided that you are required to go to a hospital and provided you stay there for a minimum period of 24 hours, except for certain day-care procedures. It would not be fair to compare the two. What we have is essentially a good scheme for lifting the burden of the average individual.

ML: How far do we have to go to reach that level?
FP: Actually, in a way, we are better off.  We do not have the type of control and interference in decisions as to what needs to be done, which Health Maintenance Organisations (HMOs) overseas have, as a result of which the entire health bill in the US is being seriously considered for change. Here, so far, we don’t have a Third Party Administrator (TPA) saying this cannot be done or why do you need it or only this should be done. At least the money that you have spent should get back to you, provided you have taken adequate insurance and provided your claim is not rejected on the grounds of pre-existing ailments. If we can sort out the matter of pre-existing ailments, then I think we have a good scheme. The whole issue of defining pre-existing ailments and portability of policies needs a sort of comprehensive addressing. There are too many conflicting views at the level of the powers that decide these matters.

ML: How does the recovery, premiums vary between India and the US? FP: There is a big difference. Here one can go into an intensive care unit (ICU) at Rs3,000-Rs5,000 per night in a good hospital. The hospital charges are very high in the US. The premiums have to match those charges. So there is no way of comparing premiums or recoveries because it will be like comparing two very different scenarios. First, one has to relate it to the average person’s income. Secondly, to the hospital costs. So someone who takes a million-dollar cover there may actually need it. Here, nobody needs that kind of cover.

ML: What is your view on the tussle between TPAs and doctors?
FP: We have this habit where we want to import what is going on in some other country—for instance, change Mumbai into Shanghai. I don’t think it is so easily done or whether it’s the right thing to do. I don’t even know why we should even think of importing something, which is a failed system. There has to be some sort of common ground. There is no question of TPAs saying that a professional doctor’s visit must not cost more than this. You can’t cap it, because in case of professional doctors attached to a hospital, it is the hospital that fixes his visit fees, from which the hospital gets a certain percentage. The TPAs don’t have any authority to do that. I think it was a very ill-conceived idea, more like shooting from the hip. How can there be any agreement (between doctors and TPAs)? It’s like this—I am a professional in my business and if you want my services this is my price or else don’t use my services. Go to some other hospital. Is that the right thing, because health is the most important aspect for any individual? So, anyone who is willing to be hospitalised wants to make sure that he/she is in good and capable hands, with good hospital facilities and infrastructure. If that hospital says that I am not agreeing to a capped fee, what do you do? You have to find a hospital that has agreed and then make sure that you are getting the same level of medical and surgical treatment. 

I don’t see patients getting caught in the crossfire between TPAs and doctors, because to the best of my knowledge, I think it’s only one or two TPAs who are the ones arguing. I think those TPAs’ services will come under serious question by the insurers. The insurer will simply say, I’ll employ a TPA who does not insist on this.

ML: What do regulators need to do to handle this matter?
FP: The (insurance) regulator has licensed the TPAs. So of course it is for the regulator to take a view. Between the insurance company and the TPA, if there are one or two companies that feel this is the way forward, it is still left to me whether I am ready to look after my insured clients and in that case, say—sorry we don’t have a business relation and you will not be our administrator.

ML: Will insurance companies do so and are they in a position to do so?FP: The thing is that some of these TPAs have been in the business for a long time and they have been rendering a certain service. I would presume that insurance companies would be satisfied with these services. If they are not satisfied, there are other TPAs. My own belief is (this is what we tell our own clients) we prefer to ensure that our clients’ claims are dealt directly with the insurance companies. We explain to the clients that the privity of contract lies between the insurer and insured. I need to sit and discuss with the insurer if there is a problem. Invariably, once the insurer has appointed a TPA he becomes hands down, which in principle is not desirable.

ML: What do you tell your clients to look out for while taking a mediclaim policy?
FP: All the insurers are good insurers with good business practices. You have to see who is offering the best product. Everyone’s product has some positive features and some negative features. There should be a very clear understanding as to what is the intention behind a policy. There are a lot of things that need to be sorted out and this cannot be sorted out on a one-to-one basis, there has to be a sort of ‘getting together’ approach. By and large TPAs don’t make any distinction between planned hospitalisation and emergency hospitalisation. They require final diagnosis and final line of treatment before they sanction the cashless authorisation. You cannot have that at the time you are going to be admitted. So if you planned something, you carried out the test and you know what is the line of treatment. If there is an emergency hospitalisation and you still want authorisation (which TPAs normally do) we will give you authorisation after we have final diagnoses and final line of treatment. The main problem is nobody is sitting together. Insurers and all their representatives are not really involved in all these decisions.

ML: What do insurance companies need to do to transform the health insurance business into a profit-making one?
FP: First, write a meaningful cover. What does one need foremost to make a profit? If you are in the business of supplying cell phones for instance, if your cost is ‘X’, you have to sell at ‘X’-plus. The minute you sell at ‘X’-minus, you are making a loss. It is as simple as that. Covers are being sold at ‘X’-minus. One needs to underwrite the cover. One needs to do a lot of things—maybe they should think of no-claims bonuses, low-claims bonuses, so that they distinguish between those who are presenting no claims, just like motor cars. Previously, we used to have a penalty if you filed a claim repeatedly. In one word, there has to be an underwriting of this cover.

Secondly, one has to completely segmentise this cover. The average man on the road needs a different cover at a different price. I don’t know why, so far, insurers have not though of it. Now, they are offering top-ups and add-on layers. But if you just think that there are admittedly some 45-50 million high net worth families, why not give the family a cover? Let’s say that for a family of four, the cover offered is at an annual premium of say Rs100,000 or more, if the target of selling such a cover to 11 million families over a period of four years is achieved, the mediclaim premium from this segment alone would be Rs1,100 billion. You have to do business that way. I think that there is money to be made. If everybody were to decide that this is an area where we can give a social service to the community at large and yet, make a reasonable profit, it is possible.

ML: How far has insurance come in India?
FP: We do sell all insurances largely, which are sold all over the world. If you are talking about awareness, then yes, it is low. The only compulsory insurance that every insured has to purchase is Motor Third Party Liability.  Incidentally, it is generally reported that even though 3rd Party Liability coverage is mandatory, a significant proportion of owners of vehicles (particularly two-wheelers) do not take insurance except at the time of registration of the vehicle. There is no other compulsory insurance. Most insured do not consider the risk of fire, as a result of which only a small percentage of householders take fire insurance.   

It is so easy to get an accident insurance policy at cheap premiums. You can avail of a cover up to Rs1 lakh for as little as Rs90 annual premium. You might be in the wrong place at the wrong time. You can easily lose a couple of limbs. This is covered under the accident insurance. But even educated people don’t buy. You can blame it on awareness or lethargy. Awareness is poor because insurance was not sold for years—it was bought. In home insurance, the effort-recovery ratio is not attractive. That’s why insurance companies are not pushing it, but some are doing so in a big way.

(The views expressed by Mr Fali Poncha are his personal views and not those of the company he serves)



mahesh desai

6 years ago

congrates on clear understanding & expression.
IRDA & Insurers & Brokers be made to read this

Direct tax mop-up for 2009-10 may fall short of target

The government had set the target for direct tax collection at Rs 3.70 lakh crore in the Budget for 2009-10, and later revised it upwards to Rs3.87 lakh crore

The direct tax collection for the financial year 2009-10 is likely to be around Rs3.80 lakh crore, missing the revised target by Rs7,000 crore reports PTI.

"The final figures will be available in mid-May when all the transactions are compiled. As on date it is somewhere around Rs3.78 lakh crore...it may be Rs3.80 lakh crore," Central Board of Direct Taxes (CBDT) chairman S S N Moorthy said at an Assocham seminar.

The government had set the target for direct tax collection at Rs 3.70 lakh crore in the budget for 2009-10, and later revised it upwards to Rs3.87 lakh crore.

According to the provisional data, the actual collection of direct taxes, which mainly includes corporate tax and personal income tax, was Rs3.75 lakh crore.

However, minister of state for finance S S Palanimanickam had informed Parliament that the provisional figure of Rs3.75 lakh crore would be revised upwards once the final figures are received.

Speaking at a TDS seminar, Moorthy said that TDS component in direct tax collection is quite substantial. It stood at Rs1.53 lakh crore in the last fiscal, about 40% of the total direct tax collection.

During the current fiscal ending 31 March 2011, the government proposes to mop up Rs4.30 lakh crore through direct tax. Of this, Rs1.28 lakh crore is expected from income tax (I-T), Rs3.01 lakh crore from corporate tax and Rs603 crore from wealth tax.

To enable faster refunds to tax payers, the I-T department plans to open centralised processing centres in Faridabad and Ahmedabad. At present it has only one processing centre in Bangalore.

"We are still at the thinking stage but it is likely to be in Ahmedabad and Faridabad," Moorthy said.


RBI prefers long-term capital inflows: Subbarao

 Governor Subbarao said Tobin tax is not on RBI’s agenda, and the path to full capital account convertibility is being “recalibrated on a dynamic basis”

The Reserve Bank of India (RBI) will liberalise the capital account gradually, keeping in mind lessons from the global credit crisis, and there are no plans to impose Tobin tax to curb currency speculation, governor D Subbarao said.

"Our position is that capital account convertibility is not a standalone objective but a means for higher and stable growth," Subbarao said in a speech delivered at a conference hosted by the Swiss National Bank and the IMF in Zurich on Tuesday.

"As regards a Tobin type tax, we have not so far imposed nor are we contemplating one. However, it needs reiterating that no policy instrument is clearly off the table and our choice of instruments will be determined by the context," he said.

Tobin tax is a transaction tax on currency conversions intended to curb volatility and speculation.

"We believe our economy should traverse towards capital convertibility along a gradual path—the path itself being recalibrated on a dynamic basis in response to domestic and global developments," Subbarao said.
Foreigners have invested a net $6 billion in Indian stock markets so far in 2010, adding to record capital inflows of $17.5 billion in 2009. The inflow has helped the rupee gain about 2.7% this year, after rising 4.7% last year.

Subbarao said the central bank's preference was for long-term equity inflows, rather than short-term debt flows.

"Our policy has been quite stable," he said, referring to emerging economies that had opened up and then tightened rules when flows became volatile.
"Our policy on equity flows has been quite liberal."

Subbarao reiterated the exchange rate is not guided by a fixed or pre-announced target or band.

"Our policy has been to intervene in the market to manage excessive volatility and disruptions to the macroeconomic situation. This volatility-centric approach to the exchange rate also stems from the source of volatility, which is capital flows," he said.










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