Insurance Gazette: Some discipline is needed in the healthcare ecosystem

Industry leaders speak about the learnings over the past year and the opportunities for progress that the pandemic has provided

The last 18 months have been very tough for the non-life insurance industry and, particularly, for those in the health business. The companies have had to pay claims in excess of Rs 20,000 crore for something — the pandemic — that was not factored in while designing products. Also, the huge claims outgo has resulted in general insurers’ profitability falling sharply, while for the monoline health insurers it caused a solvency scare. Having said that, the pandemic has also resulted in an unprecedented pick-up in demand for health insurance products, making it the dominant business of the non-life insurance industry. In a panel discussion moderated by Tamal Bandyopadhyay, consulting editor, Business Standard, Bhargav Dasgupta, managing director & chief executive officer (MD & CEO), ICICI Lombard General Insurance; Tapan Singhel, MD & CEO, Bajaj Allianz General Insurance; Rakesh Jain, CEO, Reliance General Insurance; and Anand Roy, MD, Star Health & Allied Insurance speak about the learnings over the past year and the opportunities for progress that the pandemic has provided. Edited Excerpts:

How do you digest the loss because of Covid-related claims and what is the way forward?
 

Anand Roy: The non-life insurance industry has paid roughly Rs 30,000 crore worth of Covid-related health claims over the last 18 months. And, the sector has been standing shoulder to shoulder with the insured public in these challenging times. There were a lot of doubts about whether Covid is covered or is it an act of God but the industry players came together and stood up and said we will cover this. Over that last 18 months, while bearing extreme solvency pressures on the balance sheets, all the players stood with the public. We are struggling with a party (healthcare operators) which does not have a regulator and that is an area where all the players and the entire ecosystem have to come together in the larger interest of the public because we have seen a lot of unwanted attempts being made to overcharge the public and as a result the insurance companies have suffered a lot. Some amount of discipline has to be brought in the healthcare ecosystem so that in the future, whether it is a dengue outbreak or any other disease for that matter, the public is paying the right price for the services they are availing from the service providers, especially the hospitals. The industry is working on some health exchange standards. Hopefully, that will take off and become successful wherein data sharing on frauds will become easy, thus making the industry much more viable.

Bhargav Dasgupta: Health insurance or any insurance is a pooling of small amount of premiums that is used to pay a few large claims. And conceptually a pandemic is uninsurable. But, we as an industry stood tall and said we will support society. In spite of the large number of claims that were not priced-in while designing the products, we did not reach out for any kind of support from the government and that shows the sense of responsibility of the industry. If the pool becomes unviable because of high claims, then the pool has to be replenished by increasing the premiums. If you look at health inflation in this country, it is roughly in the low teens or mid-teens; you need to have that kind of price increase. But there is another way of solving this, that is by focusing on the cost side of the equation rather than looking at a cost increase and premium increase, which risks taking our country in the direction of the United States.

The other way to look at it is to look at healthcare inflation and the fragmented nature of the healthcare ecosystem. The Indian healthcare system is an inverted pyramid. The overall healthcare delivery system needs to be addressed if we want to solve this problem at a national level. One very positive step that we are seeing and that we are supportive of is the digital health mission. Our request to the policymakers has been that if there can be standard rates for Covid tests, there is no reason why there cannot be standard rates for Covid treatment, depending upon the severity of the patient’s illness. These are the areas that the policymakers can work to ensure that we do not unnecessarily have to increase premiums because the cost is getting out of control.

 

Rakesh Jain: In the nascent stage, most of us have been looking for a simple solution. If you see our health insurance policies, it’s an all-risk policy. The question really is, are we looking at a peace-of-mind kind of a situation or are we looking at specifics, one-offs, or few diseases-led solutions. Structurally, both the approaches may evolve because you will have all types of people with economic resources at their disposal. Frankly, I feel the amount people spend on health insurance, at least the people who are buying, is a fragmented portion of their income. I would rather presume that this trend will continue in the foreseeable future because the larger goal is to get people on board, give them quality healthcare. In this endeavour premium increases should be linked to the goal. Insurers have stood by people in tough times and have taken heavy penalties with shareholders funding that. Monoline companies had to scramble to raise capital. General insurers could show some resilience because their business is more diversified. Had it not been a country where the prospects are good, I guess, capital raising itself could have been a herculean task. I think insurance should be seen as a part of evolution, and our goal should be to have a unified approach, an ecosystem needs to be created.

Tapan Singhel: From 2007, when free pricing happened, our combined ratio has been close to 115–120 per cent all these years. I don’t know what we are talking about when we say we had a huge number of Covid claims for one year. The combined ratio has not spiked to that extent because of the claims. So, the overall combined ratio does not show that the industry has something to cry about. If they have been happy with the combined ratio of 115 – 120 per cent for so many years, then they should not complain about the Covid claims either.

I do not understand why the industry can’t ask the government for subsidy or something similar to that because they, along with the regulator, had stated that they would support the industry. When every industry can go and tell the government that a certain thing has to be subsidised, why should the insurance industry not ask for a subsidy for something which was a national cause. Everybody should chip in. The government should reduce  goods and services tax  (GST) on premiums. The premiums are moving up because of the claims we are seeing. If the effect on the end consumer has to be lessened then the GST on premiums has to be looked into. Why should 18 per cent be charged when we are talking of national interest or consumer interest. It can’t be that one part of the ecosystem takes all the blame, is the whipping boy, and also does the right things.

Do you think the traditional insurers will face stiff competition from the new age companies?

Singhel: When we get branded as traditional, legacy, or dinosaur, I don’t think that is right. Let’s take all the insurtechs and figure out what is being done by them that we are not doing. I don’t think the progressive companies wait for change to happen and then they react. For example, Bajaj Allianz has shifted its core processes to “Cloud” because this would support any kind of volumes of transactions that may take place. Does any insurtech firm have their core process on “Cloud”? When I look at insurtech, I don’t think they are doing anything that is not happening in the industry. In an era when innovations do not last for six months, then we should collaborate and bring value to the consumers at a much larger scale.

Jain: The classical insurance companies understand risk better and they have resources to invest in the future. For many of the start-ups, their goal is not to produce an idea but also to sustain the idea. The classical insurance companies have the will and the resources to create value. Insurance has always been a push product. It was not something that was in the forefront or we can say that people did not have enough resources to buy insurance. With digitisation, insurance is becoming a primary product and many of these start-ups have realised that insurance creates a great pull for their business model and you will see various types of people experimenting with customer segments. The digital companies are realising that there is a logical way by which they can also look at insurance to connect with the customer. It is no longer just a push scenario; it is an appropriate bonding which they want to create. For insurance companies, insurtechs become an extended way of creating a conceptual promotion of your products. The thing which will matter in times to come is, all digital companies will have their own way of looking at marketing and distributing. Of course, insurance companies at the back-end will be the risk masters, they will aggregate, see how to price it, and give quality services. But, at the end of the day, digital companies will not work in a format; they are going to work in a way the consumer behaviour is likely to get shaped and this, to my mind, is what the classical companies need to really imbibe. The good part is most of us have invested enough on digital architecture, being on “Cloud”, and scalability. The only thing we lack is customer profiling, which, I think, with digitisation is going to catch up soon. So, I think we should partner with insurtechs on good ideas, pooling the risk in a very different way.

Dasgupta: The traditional insurance companies like us, who have been in the industry for 20 years, have had to be in a space where we are competing on very fine margins. We were forced to digitise because we are a low-ticket and low-margin industry, which is why most Indian companies that have done reasonably well, have been forced to digitise. I don’t think it is new for us to use automation, AI, or sensors or IoTs to run our business. Our ability to know our customer has been a challenge for our industry; we do not have a KYC requirement. This is an area where we have to be better. And that is where we are trying to partner with fintechs. The role of insurance is changing from a risk transfer company, where you pay a premium and get a claim if something happens, to that of a partner in risk management and risk prevention. So, you work with the client, using whatever tools to prevent the incidence of risk and that is the value that you provide to your client. This builds greater engagement with the customers. To be able to do this, you have to partner; you cannot do this on your own because you do not have all those capabilities. Hence, this is something all of us are doing. As large organisations, the risk that we run, and we have to be cognisant of this, is that while we are doing all of this, there are a lot of agile, nimble start-ups who are addressing customer problems faster; they have built an internal organisation which is faster and nimble and that’s what the large companies have to be conscious of and build for. Our organisations have to be equally agile and nimble and if we do not do that, we run the risk of becoming “dinosaurs”.

Roy: Looking at the contributions of the insurtech companies, I think, rather than from the marketing side, there are some interesting concepts from the servicing side. The insurtech collaboration would be more fruitful on the services, which is very critical and one of the pain points for traditional insurance companies. Customer engagement and insurance companies are not known to be very friendly and that is where technology will be playing a very critical role and collaboration is the right word. Probably, on the services side, we will see a lot of engagements, developments using technological developments of many of these new age start-ups. But, as far as keeping up to pace with the expectation of the clients, whether it is in product design, bringing about low-ticket policies, or short-term plans, all of that is available in the industry and the industry has adapted to the changing demands of the consumer. In terms of services and engagement, I think, there will be a lot of developments that can be worked on along with the start-ups and the new age companies.

What are the new products that are coming up post-Covid?

Dasgupta: There are new types of risk that are emerging and one of them is cyber risk. Estimates are that it will be a $25-billion industry by 2030. Some of us have launched for retail customers. The other aspect is the outpatient care in the health segment. As an industry we do not cover outpatient care in a meaningful way. Drones are a new area and new policies have come out. With every new development in the economy, there are new risks that get created and the beauty of the non-life sector is that every new risk is potentially a market for insurance. What we want to guard against is abuse and fraud and we worry about expectations of covers which are pandemic in nature. You cannot cover a pandemic. So, if we have job losses across the spectrum, which are beyond what a pool can support is something we are worried about. Apart from that there are no reasons why we cannot create products and solutions for any new emerging risks as we get more and more data for that risk.

Jain: We are all working towards bringing innovative covers. We have job loss covers but with a caveat. We pay for three equated monthly instalments (EMIs) of the customers in case of a job loss of the customers. It’s not a pure play substitution of your income. Structurally, various ways and means are coming to fill up the intent, which is to secure the customer. A lot of things are being worked out on customising health policies for customers. Health insurance as a segment has grown big enough to cater to incremental risk. India will have to create a denominator which is strong enough to foster innovation and that is where you will see different companies in their own way, depending on their resources to build things. And, maybe in coming years, we will see incremental needs of the customers being addressed.

Singhel: Across the world, when we have any social issues, such as the pandemic, the government and the insurance companies have to work together. So, you cannot expect the industry to deliver on something that has losses to the tune of trillions of dollars. So, I don’t think the industry can come out with solutions at such a scale. That is why the pandemic pool has been suggested. Innovation in products keeps on happening. But right now, what we are concerned about is the social issue. As a country, as a government, and as an industry we should come together so that next time when this happens, we can offset this, having learnt from it. Can we cover standing charges of the industry so that the migrant labourers do not have to move and they can be paid salaries i.e., even if the factories are shut down, whatever minimum charges are there, be it employment charges is covered by insurance? A pandemic pool is the solution for that and I think it’s time for us to get together and solve the issues of job loss and business interruption in a scenario like this. Some countries are working on this and coming up with solutions and it’s high time India also did this.

What impact will the increase in FDI (foreign direct investment) limit have on the industry?
 

Singhel: I have been a strong believer of more the merrier. We have got only 34-odd non-life insurance companies. The US has more than 2,000 companies; Singapore has 600-odd companies; the UK has close to 1,000. For the consumers and the market, the more companies, the better it is. That is when a lot of innovation will happen; everybody will have to do good, otherwise they will not survive.

Dasgupta: If I step back and look at our sector, forget the global averages, if we look at the BRICS countries, we are one–tenth the insurance density of China. So, we have a long runway of growth. And, it makes a lot of sense to attract more capital into the sector. We have always been very supportive of 74 per cent FDI. If it attracts more players in the market, it will lead to an expansion in the market, which is beneficial for the industry and the consumers in the long run. In India, in the last 10 years, the new players have come in with a “me too” approach thus doing exactly what the traditional companies are doing, with a few exceptions here and there. What would be interesting to see is new players coming with new approaches.

Jain: As consumers’ choices become sharper, they will automatically gravitate towards the good companies, the appropriate products and I think the pricing points will emerge from the risk experience. I think more companies coming with an objective of growing the market should be encouraged, given India’s potential and the huge economic surge we expect in the coming years. Secondly, I don’t think we can, anymore, have one or two guys owning an insurance company. Large institutions should be held by multiple investors and this will create a different degree of acceptability or brand in the overall ecosystem. And, this is where the companies which are listed will carry the responsibility of ensuring they meet the needs of the various stakeholders.