In a freewheeling interview to Moneylife editors Debashis Basu and Sucheta Dalal in Hyderabad recently, J Hari Narayan, chairman of the Insurance Regulatory and Development Authority (IRDA), spoke on key insurance related issues
On IRDA's attempt to reach out to policy-holders and creating awareness among consumers.
The education initiative was started in March last year with the first conference on policyholder protection which included consumer organisations, insurance companies and other stakeholders. We obtained the procedures of dealing with consumer issues from various insurance companies, put them together in a booklet, and distributed it to people. We also put together a small war chest and agreed to meet a part of the cost of consumer education initiatives by four groups. We also started an education campaign last September through the issue of advertisements, but it got derailed by the issues over ULIPs (unit-linked insurance products). We are now trying to revive it.
I find that most insurance companies have robust grievance management systems. The life and non-life insurance segments each get around 200,000 complaints a year. We have got them to adopt a system of classification of complaints. We find that most complaints are not about mis-selling. They are about policy administration issues such as card not received, policy not sent, address not corrected and so on. About 18%-19% of them are about mis-selling which requires a proper tracking mechanism. So we are designing a system that can override their systems. It can see what each company is doing with their systems and whether they are handling it right. We will also be able to do random checks into the cases they have rejected and the reasons for their rejection. Or, if they have accepted the complaint, what was the error that led to its rejection in the first instance. This will be in place in the later part of the year and then we will have a far better way to address consumer complaints. We have to see that companies implement the systems, because fundamentally, it is they who have to do the implementation. IRDA cannot be substituting what the company needs to do; because, in law, the consumer and company are bound by a contract. Once this system is in place, we believe, it will significantly improve the manner in which consumer complaints are handled by insurers.
On further empowering the Insurance Ombudsman.
We are looking at it. Right now, the office of the Ombudsman is the creature of a government order. Under the current law, the Ombudsman is working like an arbitrator. He mediates between two parties to the dispute. That essentially happened because the government is the owner of the company and also the representative of the complainant, in a much larger sense - since the government is responsible for the welfare of the people. That is the manner in which it was set up. We are expanding the scope of the Ombudsman's office, strictly without any remit even to private insurance companies. So we want to cover it by an enactment. I don't know how we can do that, but we have provided that it should be there in the Bill that is pending before Parliament. But fundamentally, we have to have a system that provides legal redress. It will have to be some sort of a legal system and a formal structure like a consumer disputes mechanism. That may require a separate enactment. Right now, the Ombudsman's office is a second channel for making a complaint. Today, it is working more through moral suasion.
On whether the Insurance Ombudsman can function like the Banking Ombudsman.
As things stand, a complaint goes to the Ombudsman only if the company has not tackled it correctly. There is some merit in retaining that route. But perhaps, there is merit in looking at a situation where the case is automatically shifted to the Ombudsman after the company has had some reasonable time in which to settle the grievance. The Reserve Bank of India is a vast organisation with 20,000-odd employees. I am not very comfortable with the IRDA growing to that size. I don't think it necessarily improves the quality of regulation.
The Ombudsman operates with some informality. There is no legalese and lawyers. Right now, the Ombudsman's office is staffed by public sector employees; but, if it has a formal legal structure, it may end up growing into a huge bureaucracy with all its ills.
On how the insurance industry will cope with the new cost and expense rules effective 1st September.
Well, insurance companies are worried about having to cut down their expenses, but the fact is that their expenses were too high. They were taking a high-cost path, which I don't think is good for the industry, and now that I have closed the gate, they are worried that they will have to sit down and work, for the first time. I don't think it is going to be as problematic as they fear. The first-quarter numbers have been good, but we need to watch out for the numbers for the December quarter - that will be the test. I don't think it is going to be as dismal as they make it out to be.
On the tussle between insurers and hospitals with regard to high costs.
The hospital costs are one major issue. But the other big issue in health insurance is the fact that it does not cover pre-existing diseases and they don't pay for what can be a pre-existing condition for a certain lapse of time after the policy is in force - usually two to four years. Then there are certain exclusions in a policy like cataract, dental work, etc. And what is misleading about a health insurance is that suppose one gets a dreaded disease, like cancer or diabetes, the treatment involves long-term costs and it is difficult to build a cover in India for these long-term costs.
The total healthcare spending in India is estimated at around Rs300,000 crore per year. And 75% of it is private spend; 25% is under some government scheme or the other. Of the Rs300,000 crore, as much as Rs230,000 crore is spent outside hospitals - outpatient treatment, diagnostic tests and expenses on medicines, etc. Insurance can cover only that Rs70,000 crore and, of that, the insurance coverage was only Rs7,000 crore - only 10%. The claims ratio is atrocious - around 130%, but it is coming down slowly. It didn't matter very much in the 1980s and 1990s when expensive hospitals like the Apollos of the world were not there.
On tackling issues related to the shortage of quality hospitals and medicare.
I see it, two things will happen. I see an expansion in quality hospitals. I see that today in Andhra Pradesh and Tamil Nadu. That will happen all over the country. Second, we actually have a database today where you can see the range of claims. We never had that earlier. For the past two years, we have all the claims raised by any person in a database. It is pretty robust, but still represents only 10% of the spending, which is under insurance cover. We have no information at all about what is spent by those who are not covered by insurance - that data does not exist. But, in the insured category, we can see a fair spread across hospitals in Tier-1, Tier-2 and Tier-3 hospitals; so not everybody is going to five-star hospitals.
On how ULIPs have been sold.
I must admit that the insurance industry has made a mistake in marketing insurance as investment. It is a risk product; it is meant for safety and security; its fundamental principle is different. In fact, in a country like Canada, they don't even allow insurance to be sold within the banking facility. Maybe somewhere along the line, we lost sight of the fact that insurance is a risk cover. To confuse insurance with investment is a mistake. It would be unrealistic to expect insurance to give the kind of returns one can earn from a well-managed investment.
ULIPs came about as a half-way house from traditional insurance, in order to have some element of investment to beat inflation. I believe it was wrong for companies to get carried away and sell ULIPs entirely as an investment product. So, I am glad to say that we have taken steps to change and also clarify that insurance is a safety product and not an investment product. Let us hope that the pooling of money under such products is not adversely affected; because, if that shrinks, it will affect the money available to the economy for investments that we need. I am hoping that the balance will not be tilted too much, and I am confident that they will not; but the facts of how this will be played out will be clear about a year down the line.
On the controversy over withdrawal of cashless facility on health insurance.
There is a lot of concern expressed everywhere about the withdrawal of the cashless facility for health insurance. There is also criticism about IRDA having done a disservice by not intervening on the cashless facility issue.
The reason why I did not think it was appropriate for IRDA to intervene is because the transaction is a contract between the policyholder and the insurance company. The insurer is committed to reimbursing a health expenditure that has taken place. The cashless facility is an additional service provided, sometimes gratis, in a certain set of partner hospitals. The partner hospital is not a permanent state of affairs. It is a dynamic list that will keep changing. We have mandated that the set of partner hospitals must be made available to the
policyholders at any given point of time.
Now, the public sector insurance companies, in Chennai, Mumbai, Delhi and Bengaluru have found out that, in several hospitals, the same procedure has a different bill raised if it is a reimbursement claim or a cashless claim. They found that the difference was not just the cost of money for the delay in payments, but significantly more. That was a problem. They also discovered that the benefit of bulk buying by hospitals for things like stents, joints, tubes, etc, which was substantial, was captured by the hospitals and not passed on to the consumer. So there were significant anomalies, even within the family of those who had a cash facility or a reimbursement facility - it was not even a comparison between those who had insurance and those who did not.
So I thought the insurance companies were quite right in requiring the hospitals to fall in line or face the consequences. I did not see it as a regulatory issue but a contractual one between the hospitals and the insurance companies. On 1st July, when the insurance companies terminated the cashless facility, there were 320-odd hospitals in these four cities which were a part of the partner network. By mid-July, the number of hospitals that fell in line was 380 - a little more than the original network. Today, there are 450 hospitals who have agreed to join the network and be reasonable with their billing. I still maintain that it was not a regulatory issue. Because of the action of insurance companies, there is some amount of balancing of costs. This will improve in the long run and we do have a long way to go.
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