Conference on Sustainable Health Insurance - Need of the Hour
November 29, 2007, New Delhi

Speech by Shri C S Rao, Chairman, IRDA in the FICCI conference on Sustainable Health Insurance - Need of the Hour

I am happy to note that FICCI is organizing this one day conference with the central theme of `Sustainable Health Insurance - Need of the Hour'. I also appreciate the variety of issues which are planned to be discussed during the day, and the presence of numerous experts from the health sector and the health insurance domain in this gathering today. I am sure the discussions will be very fruitful and will certainly contribute to further development and strengthening of the health insurance sector, which is something we at IRDA are also very keen to support and get involved with.

Detariffing of the general insurance industry will now become a key driver for increased emphasis and efforts by insurance companies towards health insurance and other personal lines of business. The business volumes and margins which have so far been available from fire and engineering businesses are now rapidly becoming history. The impetus to grow, and to earn, will now need greater efforts in reaching out to individuals and will depend on growing the retail segment, and in targeting more an more individual customers.

Even within the personal lines of business also, the predominant volumes and growth are being seen in two areas - motor and health, of which the motor insurance segment more or less follows the fortunes of the automobile industry. Thus, additional motor insurance business finally depends on the production patterns of automobiles. On the other hand, the promising area where insurers can build up volumes and gain new business through their own additional efforts, is health insurance.

The insurance companies have indeed risen to this challenge and have taken efforts, more than ever before, to grow the health insurance market. The demand for health insurance covers has seen a healthy increase, and today the sector is the fastest growing segment in the non-life insurance industry in India, which grew at over 40% last year. It is also emerging as an increasingly significant line of business for life insurance companies. During the last five years, the premium from health insurance products in non-life companies has grown from 675 crores in 2001-02 to Rs 3200 crores in 2006-07, almost 5 times its level 5 years back.

While this rate of growth appears to be very healthy, it is on a low base, and health insurance penetration in the country continues to be low. Only about 25 million persons are presently covered for health through commercial insurance, in a country of over 1.1 billion people. Overall, the Indian health sector is still characterized by the near absence of any significant risk protection against major health-related expenditure, as insurance and other organized forms of payment for health services, including ESIS, CGHS and other such schemes, barely constitute a tenth of all health expenditure in the country. Almost four-fifths of the health spending in the country is private, out-of-pocket expenditure. In the absence of such protection, the financial impact of hospitalization can be very pronounced, and indeed is reported as one of the leading causes of impoverishment in the country.

Thus, there can be no doubt that health insurance is a `need', that requires to be addressed. This is where there is a role to develop more products, to address needs of specific target groups, and at the same time, to build awareness regarding health insurance and its potential to protect from such unforeseen health expenditure. Thus, a lot more needs to be done by the trade chambers, the insurance industry, the health providers and also the IRDA to develop the health insurance sector.

Some recent estimates by reinsurers and by consulting firms suggest that health insurance is likely to grow rapidly, cover 20% of the population and constitute 12% of the total health market of the country, or over Rs 30,000 crores by 2015, which implies a ten-fold increase over the next 8 years. While the magnitude of such growth in health insurance is a matter of estimation, there is no doubt that there is tremendous potential for development of health insurance.

For the continued development of the health insurance market, and also to protect the long-term interests of the insured persons, there is a responsibility on all stakeholders in the system for ensuring sustainability of health insurance. On one hand, prices of health insurance products should continue to be affordable to ensure wider acceptance and increased reach, while on the other, the insurance industry requires that this line of business remains commercially viable. We need to tread very carefully on this thin line as the sector grows, and carefully learn from the unpleasant experience in certain other countries where spiraling costs, high premium and other problems have resulted in a very complicated and perhaps unsustainable health insurance system. In that context, the central theme of this conference is very relevant, timely and appropriate. I am sure that the international experience being shared today in each session of the conference, focused around the central theme of sustainability of health insurance, will help us with some new insights and knowledge and enhance our understanding of the sustainability issues in the sector.

Health Insurance occupies a very important position in the developmental priorities of IRDA. In fact, IRDA had set up a National Health Insurance working group in 2003, which provided a platform for various stakeholders of the health insurance industry to work together and suggest solutions to various relevant issues in the sector. Subsequently, realizing the importance of accurate and timely data for health insurance, a sub-group looked into the requirements for standardized data on Health Insurance, and devised standard data submission formats for collecting data electronically. This system was put in place and has now been functional for over 3 years, wherein considerable data on insured persons and claims has been collected and is being analysed. More work is presently ongoing to further streamline the process of data collation and analysis. To illustrate the magnitude of data now available with the national repository- we have data on 16.3 million insured persons, 3.8 million policies and 1 million claims, for the last financial year, with continuous improvements in the quality of this data. I am sure further analysis and application of the knowledge from this data will help to improve product design and measures to develop the sector as a whole.

To handle the plethora of issues relating to health insurance with focused attention, the IRDA has also recently set up a separate health unit in the authority, and has inducted specialized resources to strengthen the role of IRDA in the development and better conduct of the health insurance business. The infrastructure of the health unit shall soon be scaled up further to meet the growing needs and expectations from this unit. IRDA also plans to come out soon with separate guidelines for Health Insurance. At the same time, IRDA is supporting industry initiatives in standardizing certain key terminology used in health insurance documents, for better comprehension and in the interest of policyholders. The General Insurance Council, comprising of all non-life insurers, is already working towards a consensus on a uniform definition of `Pre-Existing Diseases', which forms an expression with many definitions, still more interpretations and certainly a whole lot of grievances. Such standardization, we feel, will help the insured by minimizing ambiguity and also by better comparability of health insurance products.

The Authority had also recently set up a committee to study and make recommendations regarding the concerns that Senior Citizens face on the health insurance front. The committee has submitted its report to me earlier this week and made several recommendations, many of which are in the domain of the Government while others pertain to the industry and the IRDA. We are in the process of examining and taking further action on the recommendations of the committee.

In recent years, the health insurance sector has demonstrated a level of vibrance which is unparalleled till date. This conference organized by FICCI to further generate discussion and provoke thought on the very important area of sustainability, with a galaxy of eminent speakers and a very impressive list of delegates, is certainly another milestone towards further development of the sector. I also note with pleasure, that chairpersons of both the Health and the Insurance committees of FICCI are sharing the dais with me in this inaugural session. I hope this partnership between the health care provider and the payor of this health care services shall continue far beyond this dais. As stakeholders in the health insurance domain, there is need for continued interaction and consensus building with providers and insurers acting together to ensure sustainability of health insurance. On this note, I am convinced that the deliberations in this conference will bring about new insights, new knowledge and new ideas for our combined goal of developing health insurance in India. I thank you for associating IRDA in this event and wish it all success.