General insurance companies are in a quandary on whether the fees paid to third-party administrators (TPAs) should be passed on to policyholders or be treated as management expenses.
As per regulations finalised by the Insurance Regulatory and Development Authority (Irda), and to be notified, the remuneration to TPAs by insurance companies will be up to a level of 15 per cent. "This leaves insurers room for negotiating the fee structure as per service requirements from TPAs," said industry sources.
"There is no provision under our accounts to pay fees to TPAs. The authority has yet to clarify whether the TPA fees can be passed down to clients or have to borne by the insurance company," said a state insurance company official. At the same, it is likely that the fees could be paid from the loss minimisation account as the idea behind incorporating TPA services is to have some control on the claims, said sources.
State insurers are already under fire by the Irda, as their management costs are in the region of 25 to 31 per cent, far higher than the stipulated 19 per cent. The proposed TPA fee structure would add to management costs, and has left insurers confused.
Insurers are viewing the possibility of passing down the fees to customers, and thereby recovering the same from the claims account. This additional cost will not be loaded on to the premium, but be demanded under a separate head, which would hence be optional.
It is not possible to load premiums as it becomes a tax issue for state insurers. Earlier this year, the General Insurers' (Public Sector) Association (Gipsa) proposed a 30 per cent hike in Mediclaim premium in an effort to bring down the high claims ratio of 130 per cent to more sustainable levels.
Sources familiar with the issue said that the proposal is pending with the government as the Central Board of Direct Taxes has to approve the hike in premium as this is totally exempted from income tax.
At the same time, insurers doubt all customers will willingly pay for the TPA services. "Indians being price sensitive, they are likely to disregard the TPA service," said an insurance official. The entire exercise of involving the services of TPAs and regulating them becomes a meaningless task if customers have the option not to pay, and insurers are not willing to make the payment from their own books," said a leading TPA.