With the increasing ratio of claims and complaints, public sector insurance companies have decided to set up a common third party administrator (TPA) to carry out it's claim settlement process. A TPA is an organisation that processes insurance claims and other aspects of insurers.
“The common TPA was proposed to plug large-scale leakages while settling health insurance claims,” says an industry official requesting anonymity. It is expected to speed up the claim-settlement process as well as reduce the claims ratio of insurance companies.
Currently, the private general insurance industry is divided into two halves where claims are settled in-house as well as through TPAs. The new insurers usually outsource the claim settlement process through TPAs because settling claims in-house requires expertise and man-power which the company doesn't have in it's initial years. However, hiring a TPA to settle claims is an expensive affair for the insurers compared to settling it in-house. Hence as and how the insurer grows and gains the required skills, it moves on to settle it's claims in-house.
HDFC ERGO, ICICI Lombard, Max Bupa and Bajaj Allianz general insurance are private general insurers amongst others who have settle claims in-house. Taking the in-house route, has a lot of advantages. Apart from having good claims ratio, the number of complaints also gradually decrease. Players say, they can price their products in a better way and also innovate better products at the same time. All these reflect well in their books as costs come down substantially for the insurer. Where as, players like Bharti AXA, Royal Sundaram and L&T general insurance settle their claims through TPAs. Lastly, to settle claims in-house, an insurer needs volumes in claims so as to justify it's costs.
A TPA and an insurance broker both represent the end consumer, the only difference is TPA helps customers with claims, where as a broker can help them with structure and advise on the same.
All four public sector general insurance companies, Life Insurance Corporation (LIC) and state-owned general insurer GIC will be the stakeholders of the proposed entity. Since LIC also sells a few health policies, the PSU insurers want it to be a part of this.
The general insurers currently pay a commission of 4 to 6 per cent (of the premiums) to the TPA for settling claims. Hence, this move can help them combine their expenses eventually helping them in bringing down their expense ratio and improving efficiency at the same time.
R Chandrasekaran, secretary general, General Insurance Council says although this is a step in the right direction, the companies will have to upgrade their technology and invest heavily there. However, there are chances the cost of administration may come down with better efficiency in the process.”
Oriental Insurance Company chairman cum managing director A K Saxena says, at this point in time, we can't say by how much the costs will come down by, but the service levels will definitely improve. “Instead of so many TPAs we will now have a more leaner format with improved quality of claims.” He further adds that, the transition of the business to the common TPA will be gradual.