The Indian market is currently dominated by variants of the Mediclaim product which was designed and offered by the four public sector insurers before privatisation. Milliman’s Rachin Aggarwal and Abhishek Agrawal examine how the concept of a standard health product would benefit various stakeholders.
Private health insurance in India has seen continuous growth since private players entered the market in 2001 and standalone health insurance companies started entering the market in 2007. Even though several new products and services have been added by the private players the market is still dominated by variants of Mediclaim, which public sector companies started to offer before privatisation of the insurance sector.
While all Mediclaim products have similar benefit designs, there are some differences, including but not limited to:
- Waiting period for pre-existing diseases
- List of exclusions
- Sub-limits for services such as room rent or ICU
- Condition-specific sub-limits
- Inclusion of maternity benefit
- Member co-payments
- Size of hospital network
- Premiums charged for similar coverage
The IRDAI has recently issued draft guidelines on the standardisation of retail health products. The guidelines are still subject to changes and may undergo multiple iterations before being finalised. However, the concept of a standard health product would have significant implications for various stakeholders.
We look at some of the opportunities and considerations a standard health product framework presents to various stakeholders (see Figure 2).
Opportunities
For consumers: The main advantage for consumers would be less ambiguity in terms of current product offerings by various insurers. Consumers would not need to compare several products offered by various general and standalone insurers having similar benefits but considerable differences in terms and conditions.
Given that health insurance is a complex product, consumers often feel dissatisfied due to low level of consumer product awareness and potential high levels of mis-selling of inappropriate or unsuitable products for particular groups of consumers. Overcoming this challenge has been a major task for the regulator as well as insurers. A standardised product can help reduce this. Consumers only needs to look at the price of the product and the list of hospitals in the network, and then choose a level of sum insured that meets their needs.
For insurers: Tier 2 and tier 3 cities still have very low penetration levels due to low awareness levels and the perception of low product value by consumers. A standard product could present an opportunity to cater to this market if accompanied by an awareness programme by the industry.
With the introduction of a standard product, the insurers would not be able to differentiate themselves through product design but would still be able to differentiate through operational functions such as provider contracting, underwriting and pricing, as well as policy servicing as enumerated in Figure 3.
For regulators and policy makers: A standard health product would potentially help increase penetration into the newer market segments. The standard product would also help both insurers and regulators to reduce policy and claims-related grievances that are due to low awareness levels and mis-selling. It would help create a larger risk pool and thus reduce anti-selection due to access to larger consumer bases, similar levels of benefit cover, underwriting and prices. It would also enable ease of portability and provide an opportunity to expand to universal healthcare based on a standard minimum set of benefits.
For providers: The large insured population would require new private hospitals and increased utilisation of existing capacity. With increased cash flow, a standard health product could also pave the way for better infrastructure and quality in line with the demand of insured customers.
Critical success factors
A standardised health product is a step forward but many factors need to be considered for its success including:
Well-defined and clearly laid out product specifications that meet the following objectives:
- Encompass the current needs of the customer
- Simple enough to comprehend, with a standard set of terms and conditions
- Provides comprehensive coverage
Stakeholders’ ability to generate awareness: Health insurance will continue to rely heavily on high awareness levels for its success.
Building trust in health insurance as a concept to indemnify a policyholder at the time of claim is an essential element.
Transparency to make buying decisions easier: Certain mandatory disclosures, such as the claims settlement ratio, claims rejection ratio and number of grievances, need to be published online separately for this product.
Affordability: This is a key success factor for a standard product. Insurers selling this product will have operational efficiencies in marketing and distribution, claims management, underwriting and provider contracting that can be passed on to the customer by reducing premiums.
Active fraud and abuse management: One of the major challenges faced by the industry has been fraud and abuse by a few providers and members.
Universal healthcare
The concept of a standard product will have its own set of challenges. It could be a deterrent to product innovation and differentiation and could add to confusion among existing customers if communications are not clear. It may also result in cannibalisation of existing products, which would be a concern for insurers.
However, the step towards a standard health product is intended to pave the way towards universal healthcare. Such a standard product may also attract government subsidies for the vulnerable population to increase the reach of health insurance in the future. A