Health Insurance Industry-India

8/6/2019 Health Insurance Industry-India

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A PORTER MODEL ANALYSIS


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SOCIAL SECURITY FOR MEDICAL EMERGENCIES IS NOTNEW TO THE INDIAN ETHOS.

It is a common practice for villagers to take a piruvu (acollection) to support a household with a sick patient.

However, health insurance, as we know it today, was introduced

only in 1912 when the first Insurance Act was passed(Devadasan 2004). The current version of the Insurance Act was introduced in 1938. Since then there was little change till 1972 when the insurance

industry was nationalized and 107 private insurance companieswere brought under the umbrella of the General Insurance

Corporation (GIC). Private and foreign entrepreneurs were allowed to enter the

market with the enactment of the Insurance Regulatory andDevelopment Act (IRDA) in 1999.


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` In terms of the market share, the size of the

commercial insurance is barely 1% of the total

health spending in the country. The Indian health

insurance scenario is a mix of mandatory socialhealth insurance (SHI), voluntary private health

insurance and community- based health insurance

(CBHI). Health insurance is thus really a minor

player in the health ecosystem.


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KEY STAKE HOLDERS IN THE HEALTHKEY STAKE HOLDERS IN THE HEALTH

INDUSTRYINDUSTRY


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Worth over 86,000 crores and expected to grow by8000 crores each year!!!

That was what was estimated by various healthconsultants and research units a few years ago.

It seems paradoxical specially when the industry isnon cyclical and virtually immune to recession sincewe all fall sick eventually and take ourselves or ourfamily to the doctor even if we dont get bonuses.

Then what ails the health financing dream?Then what ails the health financing dream?

Whyis not taking off?Whyis not taking off?

Whyis health insurance stilla mirage here??Whyis health insurance stilla mirage here??


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` Economies of scale and Capital requirements

` Government policy

` Product differentiation and Strong Brands

` Switching costs` Distribution channel

` Relatively small market size due to affordability

issues


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Although the penetration of the health insurance

market is low i.e. 15 percent and hence this should

not be a constraint

But already existing big players have more advantagein terms of distribution, experience there by the

flexibility of expanding into rural and semi urban

populations creates barriers for other players to

enter the market.


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One of the major factors from threat to entry and closely related topolicies set by the regulatory body of Insurance in India:

IRDA( Insurance Regulatory and Development act, 1999) providessufficient protection for capital and solvency margins.

There is an entry requirement of a minimum capital of Rs 100 crore. Then there is a minimum lower bound of Rs 50 crore for the solvency

margin along with a requirement of 20% of net premiums or 30% of theaverage of net incurred claims in the 3 preceding years.

The IRDA has wide powers for accounting and auditing insurers. TheInsurance Act does not allow the insurers to undertake additional

business th

at is not directly linked to insurance. It discusses theliquidation of a company but does not talk of a Guarantee fund.


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Health Insurance is a low margin high volume

business.

A typical viable market will have 3 percent operatingmargin after claims, marketing and administrative

expenses.

But in India claims alone account for 120 to 130 % of

premium and investment income put together andhence business seems unattractive.

Because of this the 100 crore entry capital plus risk

based solvency norms means business has to grow at

55 % rate for 15 years to break even assuming

doubling of existing premiums and assuming a starting

claim ration of 90 % reduce to 85 % in five years.


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` Policyholders can now switch insurer and carry the benefitsof the previous health insurance policy.

` The Insurance Regulatory and Development Authority onThursday i.e. 10 th Feb 2011 allowed portability of health

insurance products. It will be applicable for all existing andnew contracts from July.

` Irda had asked insurance companies to allow policyholdersto carry forward the credit gained for pre-existing conditionsin terms of waiting period when he or she switches fromone insurer to another or from one plan to another,provided the previous policy has been maintained withoutbreak


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Lack of awareness

Lack of education

Lack of health care infrastructure

Significant underwriting losses for health careinsurance business

Insufficient data on Indian consumers & disease

patterns resulting in difficulty in product

development and pricing


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` The current market has seen a vast number of Mergers and Acquisitions

` 3 of the largest provider have tied up with foreign insurance agencies :-

Apollo Munich

ICICI Lombard

Max New York (Bupa)

` Concentration ratio plays an important role in determining rivalry

A high concentration ratio indicates that a high concentration is held by the largest firms

A low concentration ratio indicates that no firm holds a significant proportion of the market share,thereby increasing rivalry

` As for the insurance sector, the industry has remained considerably disciplined, thereby indicatingthat rivalry has never been intense

` However, with the scope of the insurance segment burgeoning, internal rivalry is definitelyincreasing

` The state-owned companies constitute nearly 70 percent of the health insurance market and privatecompanies account for the remaining 30 percent As the out-of-pocket expenditure on healthcare ispegged at more than 70%, private insurers are treating this as an important target market. ICICI

Prudential has started a division catering to health insurance, while Bupa-Max is awaiting theIRDAs approval to launch health insurance schemes.

` LIC recently unveiled its health insurance scheme to compete with players such as Apollo, Star andBajaj Allianz.


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` In a de-tariffed environment, competition will manifestitself in prices, products, underwriting criteria,innovative sales methods and creditworthiness. Eg:Apollo Munich advertisement campaign going ontelevision, radio etc

` Insurance companies will vie with each other tocapture market share through better pricing and clientsegmentation.

` The battle has so far been fought in the big urbancities, but in the next few years, increased competition

will drive insurers to rural and semi-urban markets Eg:Bajaj Allianz is soon targetting the semi uraban andrural populations


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24%

17%

14%

13%

11%

5%5%

3%8%

Market share

New india

ICICI lombard

United indiaNational

Oriental

Reliance

ajaj llian

Star HealthOthers


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` Microfinancing initiatives eg.ICICI Andhra, SKS

Microfinance

` Tiered Pricing strategies being adopted to suit

specific patient needs eg. Aravind Eye CareHospital, Narayana Hrudyala

` Trust based insurance systems

` Employee based insurance

Health Insurance Industry-India

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