Panel moots higher capital requirement for TPAs

Wants insurers to have at least two agencies for settlement of health claims.

In order to improve the quality of service rendered by third-party administrators (TPAs), a committee formed by the Insurance Regulatory and Development Authority (Irda) has recommended that general insurers should hire at least two agencies to execute back office jobs for settlement of health insurance claims.

In addition, to improve the coverage and quality of services provided by TPAs, the panel has suggested that the minimum capital requirement should be doubled to Rs 2 crore immediately and increase it annually till the paid-up capital reaches Rs 5 crore.

A higher capital requirement is expected to discourage a large number of players from entering the business. At present, there are 27 TPAs and 21 general insurers offering health covers.

“Policyholders should have an option to change TPAs if they are not satisfied with their service in the first year. We are suggesting that an insurer should prescribe a TPA in the first year but, when the policy goes for renewal, a policyholder should have an alternative,” Life Insurance Council Secretary General S B Mathur said.

In January 2009, Irda had constituted a committee to evaluate the performance of TPAs in health services. The committee had representatives from public and private sector non-life insurance companies, life and general insurance councils, hospitals, consumer rights activists and members from the regulator itself.

The committee submitted its recommendations to Irda last week. Its members said that fresh guidelines were likely to come into force soon. Irda officials could not be contacted for comment.

The panel was formed to specify the utility of TPAs for the future growth of the health insurance business. The committee studied various aspects of TPAs’ performance. It also examined the role of TPAs in the current health insurance market.

When contacted, TPAs said that although most companies have tied up with two TPAs, they face difficulties in the initial years of operation.

“PSUs are drivers for the TPA business. Though they say they are partnering with us, it does not seem to be the case. There is a delay in the disbursal of float money even as the insurers expect us to pay the policyholders,” said a third party administrator.

An executive at another TPA also said that public sector insurance companies take time to process bills. For instance, some of the public sector players insist that TPAs settle the claim and do not release the funds on time. This, the executive said, affected the quality of service rendered by them.

But the CEO of a TPA said that the move is a welcome step and will ensure that only serious players remain in the market.

On their part, insurance company executives said that the structure needed to be changed as the remuneration paid to them was on the basis of claims processed by them. “There is no incentive for them to minimise claims and make the health insurance business profitable,” said the senior executive at a large private insurance company.

As a result, a large number of insurance firms have decided to have in-house TPAs and even the four public sector players – New India Assurance, National, Oriental and United India Insurance – are working on setting up their own TPAs. The public sector players have hired Boston Consulting Group to work out a roadmap for starting an in-house agency.