| Friday, 20 September 2024 |
An abridged, narrative version of the latest episode of Two by Two, The Ken’s premium weekly business podcast Subscribe here
Good morning [%first_name |Dear Reader%],
“Today, we are a K-shaped economy.
There are two different angles at which the economy is progressing.
There’s one set of customers, you know, who are upwardly mobile and sitting in the urban areas. And the other ones who are struggling, you know, for sustenance.”
That was Shivaprasad Krishnan, one of the two guests we had on Episode 10 of the Two by Two podcast. And we were talking about the state of India’s health insurance sector.
Shivaprasad currently runs Kricon Capital, an investment banking firm, but he was earlier part of the founding team at ICICI Lombard, one of India’s first private health insurers.
And what he says is really the truth about health insurance in India. The divide is clear. Yes, there are a whole load of people who are insured under government schemes (close to 300 million) and group insurance (~200 million), but very few hold personal health insurance (just ~50 million).
At the other end are around 350 million people who remain uninsured.
“I would say at least for half the population… the government will be a primary participant in their healthcare journey.
And whether it comes through an Ayushman Bharat scheme, whether it comes to free treatment in the government hospital, they simply have no means to access healthcare in the private sector.
But for the other half, the top 10% of the country, they can take care of themselves.
You don’t need to worry about it.
They can buy policies, they have companies, they have wealth of their own.
They will always be fine, no matter what.
That is the 10% that is covered, and that is the market that is growing.”
That was Viren Shetty, the Executive Vice Chairman of one of India’s largest hospital groups, Narayana Health. Viren has also been spearheading Narayana Health’s foray into the health insurance segment, and he was the second guest to join my co-host Praveen Gopal Krishnan and I for this episode.
The problem with relying so heavily on group and corporate health insurance policies to do the job, though, is the fact they very often aren’t the best option for individuals.
Because the incentives here aren’t aligned with the interests of the customer, but rather, more skewed towards the benefit of the insurer.
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The challenge and the opportunity
Group health insurance is growing very fast because it is easier to acquire in bulk. But more importantly, India’s insurance regulator incentivises it by insisting firms reduce their commissions and expense ratios. Which is why insurers have focussed on acquiring more and more group insurance customers, even though their claims ratio is much higher.
And because group insurance has been made so cheap, health insurance policies for the individual customer are priced far higher than they should be in order to subsidise the group insurance business.
Group health (insurance) has been seen as a working capital product…
Group health is something that the organisation would want to cover their employees for, and so, insurance would also be bundled with this.
And if you’re actually a good property risk, then how do you get the benefit of good pricing?
That benefit of pricing would happen because of the bundling, which is how group health started to get underpriced.
That was the genesis of underpricing of group (health insurance).
There are other headaches too, most prominent of which are claims rejections by the insurer.
As Viren says, getting a claim settled can be an extremely frustrating experience for both hospitals and customers.
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