Health Insurance Summit 2008

Health Insurance Inc.: The Road Ahead

9 December 2008 Mumbai

Foreword
The private sector has played a dominant role in financing the healthcare expenditure in India, with households (Out of pocket expenditure) accounting for a disproportionate 76 percent funding of the total healthcare expenditure1. The scenario is not expected to change significantly by FY 2015 if the Government funding of healthcare expenditure and the health insurance contribution to healthcare funding continues to grow at the historical growth rates. If India wants to achieve a more desirable proportion of out of pocket expenditure, as in China (60 percent), it requires increased participation from public, private or a combination of these sectors, with private health insurance playing a significant role.

Pradip Kanakia
Head of Markets KPMG in India

The private health insurance industry has been growing at a remarkable growth rate of 37 percent since FY 2002 and currently stands at INR 5,125 crores2. Going forward, the industry is expected to grow at a CAGR of 25 to 30 percent until FY 20153. However, there are several impediments to this growth such as level of awareness across diverse customer segments, standardization of healthcare treatments and procedures and product innovation. It is widely felt that we are at the threshold of an unprecedented growth for the next 5 to 7 years in the industry. However, if we wish to make this face lift in the industry, it is imperative for all the stakeholders to come together to drive a few key initiatives that could help form the building blocks and take the industry in the desired direction. This report summarizes a few key initiatives such as increasing customer awareness, standardization and accreditation of healthcare providers, building a comprehensive and sustainable data repository, product and channel innovation and usage of technology that are likely to be critical for the growth of the industry.

A Vaidheesh
Chairman CII WR Healthcare Sub Committee and Chairman CII Health Insurance Summit 2008 & Managing Director Johnson & Johnson Medical

KPMG is privileged to collaborate with CII as Knowledge Partner for the CII-KPMG Health Insurance Summit 2008 on the theme Health Insurance Inc.: The Road Ahead.

1 WHO National Health Accounts 2 IRDA 3 Industry Discussions, KPMG Analysis

Executive Summary and Acknowledgements

Economic growth is an important indicator of a nations economic development. Growth in turn, among other things, depends on the health of its people, for which nations need to spend substantial amounts on healthcare. Total healthcare expenditure in India has hovered around 5 percent of GDP with public funding , contributing less than 1 percent of GDP Limited public funding on healthcare in . India has necessitated out-of-pocket spending to be the dominant component, funding 76 percent of total healthcare expenditure in FY 2006 4. High reliance on Neville Dumasia
Head - Governance, Risk and Compliance Services

out-of-pocket spending alone can pose serious health policy challenges related to financial risk protection in future years. India needs to focus on the potential ways to pool this risk through insurance and reduce out of pocket expenditure, for which there is a need to step up public and private sources of healthcare funding. The health insurance sector is one of the most promising sectors in Indian non-life industry today. The market size currently stands at about INR 5,152 crores in FY 2008, up from INR 761 crores in FY 2002, showing a compounded annual growth rate of 37 percent5. Several factors such as the changing socioeconomic and demographic environment of India, favorable regulatory environment as well as significant marketing push by insurance companies have driven the high rates of growth of the industry. Going forward, such drivers are expected to propel growth even further and the market size is projected to be approximately INR 28,000 crores by FY 2015 6.

Ravi Trivedy
Executive Director, Business Advisory

However, there are various challenges faced by the key participants of the health insurance value chain, which can impact the achievement of the projected growth. Foremost among these challenges are low awareness about health insurance, limited product offerings by insurance companies, lack of standardization of healthcare providers and the lack of data that can empower informed decisions. Similar to the key participants of the health insurance value chain, Indian consumers have their own challenges. While most customers agree with the concept and necessity of health insurance, they are skeptical about tedious claims processing procedures, limited options of hospitals/doctors and limited product offerings by insurance companies. More importantly, consumers have limited understanding of the features of health insurance products which the industry needs to address and change the perception about health insurance in India. From a future point of view, several factors are expected to be instrumental in

Shashwat Sharma
Director, Business Advisory

overcoming the challenges existing in health insurance industry and moulding the future of health insurance industry in India. These factors can be classified as the Pillars of Change - Consumer Awareness, Standardization and Accreditation of healthcare providers, Healthcare Infrastructure and Data and Information Exchange and the Enablers for Growth Product and Pricing Innovation,

4 WHO National Health Accounts 5 IRDA 6 Industry Discussions, KPMG Analysis

Technology and Channel Innovation. With the support of the key stakeholders viz. the Government, the Regulator, healthcare providers, insurance companies, TPAs, NGOs/SHGs and media, these factors could help combat the challenges and facilitate extensive health insurance coverage in India. We would sincerely like to acknowledge and thank the following industry leaders for providing their valuable views for this report (in alphabetical order): Government of India Mr. Tarun Bajaj, Joint Secretary, Government of India

Regulator Dr. Somil Nagpal, Special Officer Health Insurance, Insurance Regulatory and Development Authority (IRDA)

Healthcare Providers/Health and Wellness centres/ Diagnostic laboratories Dr. Devi Shetty, Chairman, Narayan Hrudayalaya Mr. Narinder Kumar, Group CFO & Company Secretary, VLCC Healthcare Ltd. Dr. Narottam Puri, President Medical Strategy & Quality, Fortis Healthcare Ltd. Mr. Nimish R. Parekh, Founder and President, Wellinformed Healthcare Dr. Sushil Shah, Chairman, Metropolis Health Services (India) Ltd. Mr. Vishal Bali, Chief Executive Officer, Wockhardt Hospitals

Insurance Companies Mr. C. Chandrasekharan, Chief Marketing Officer, Apollo DKV Insurance Company Ltd. Mr. Sandeep Bakhshi, Managing Director and CEO, ICICI Lombard General Insurance Company Ltd. Dr. Shreeraj Deshpande, Vice-President Health Insurance, Bajaj Allianz General Insurance Company Ltd.

Microfinance Institutions Mr. Satheesh Arjilli, Manager Insurance Business, BASIX Mr. Vinay Golem, Senior Manager, SKS Microfinance Private Ltd.

Reinsurers Mr. Girish Rao, Managing Director, Swiss Re Healthcare Services Pvt Ltd.

Technology Providers Mr. Srivathsan Aparajithan, Head- Healthcare Business Solutions, IBM India.

Table of contents
Health Insurance: The Road Ahead 01

The Indian Health Insurance Industry 07

Voice of the Indian Consumer 13

Future Enablers and Action Steps 22 for the Health Insurance Industry Summary 32

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Heath Insurance: The Road Ahead

Figure 1: Importance of better health

Importance of Healthcare Funding7

An important indicator of a nations economic development and national wellbeing is its economic growth. In the early years, growth in labor and capital were considered to be the key determinants of economic growth. Empirical evidence suggests that a significant portion of growth is contributed by human capital, the elements of which are the level of education and health of the people. Research has established that a 5-year gain in life expectancy is associated with annual average rates of growth of real GDP per capita that is higher by around 0.5 percent. What does this linkage then mean for India? At a macroeconomic level, improvements in health are likely to result in improved economic performance. India is now undergoing a demographic transition, with the proportion of working population expected to increase in the next quarter of a century. This rising young population, if healthy and productive, has the potential of increasing the growth of real income per capita by an annual average of 0.7 percent till 2025. Given the implications that a healthy and hence, productive population has on Indias economic performance, there is compelling need to step up healthcare funding mechanisms in India for positive returns in the long run.

Figure 2: Composition of World Health Expenditure, 2005

Sources of Healthcare funding: A Global Outlook

Globally, healthcare expenditure is funded by public and private sources. Public Sources: Public sources include expenditures incurred on health by central government departments, state departments, public enterprises, including banks and external funding for health. The source of public financing is the general tax and non-tax revenues, including grants and loans received from both internal and external agencies, and social security schemes that are funded by means of a compulsory contribution towards health. Private sources: Private sources of funding comprise out of pocket expenditure

Source: WHO National Health Accounts

which includes payments made by individuals and households and other sources of funding such as private health insurance and funding by non-profit institutions such as NGOs and Self help Groups (SHGs). Stark differences exist between the composition of healthcare funding in various countries, driven by the differences in income levels, epidemiological factors such as health and nutrition, causes of mortality from infectious diseases or chronic conditions and effectiveness of health inputs.

7 Report of the National Commission on Macroeconomics and Health, Ministry of Health and Family Welfare, Government of India, 2005

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Figure 3: Comparison of funding of healthcare expenditure

For example, in a developed economy such as Japan or the UK , government spending on health forms a majority (over 80 percent) of the healthcare funding8. While health insurance in the UK is administered through the publicly funded National Health Service (NHS), Japan has two models of health insurance: social insurance system for corporate employees and national health insurance system for people who are not covered by social insurance system9. However, in case of emerging economies such as China and India, out-of-pocket spending is the dominant component of healthcare funding, accounting for nearly 54 percent and 76 percent of total healthcare spending respectively (FY 2006).

Healthcare Funding and Insurance Coverage The Indian Context

Source: WHO National Health Accounts, KPMG Analysis

Healthcare expenditure in India in FY 2006 was approximately 5 percent of GDP compared to Japan (7 percent of GDP), UK (8.4 percent of GDP) and Brazil (7 .9 .5 percent of GDP). Public sector expenditure on healthcare has progressively decreased over the years from about 26 percent in 1995 to under 20 percent of the total healthcare spending in FY 2006. Consequently, the private sector has played a dominant role in financing of healthcare expenditure, with households accounting for a disproportionate 76 percent of the total healthcare expenditure, increasing from 67 percent in 1995 10. Households spend nearly 5 to 6 percent of their total expenditure and 11 percent of their non-food consumption expenditure on health, as per consumer expenditure data of the various rounds of the National Sample Survey Organization. Data also show an increasing growth rate of 14 percent per annum in household health spending since FY 1995-96 11. In terms of health insurance coverage, statistics in India have not been very encouraging. Several different types of insurance cover are available Government schemes such as the Employees State Insurance Scheme and Central Government Health Scheme, employer cover in PSUs and the Indian Railways, and finally private insurance schemes. It has been estimated that around 15 percent of the population was covered under some pre-paid scheme in India in 2007 with less than 2 percent share of private health insurance12. , What are the implications of limited public spending on healthcare and low coverage in India? In countries like India and a number of other developing countries, which still rely mostly on out-of-pocket payments, universal access to healthcare is elusive. A significant proportion of the population, who suffers a

8 WHO National Health Accounts 9 Healthcare in Japan, National Coalition on Healthcare; National Health Services, United Kingdom 10 WHO National Health Accounts 11 Financing and Delivery of Health Care Services in India - Background Papers of the National Commission on Macroeconomics and Health, Ministry of Health and Family Welfare, Government of India, 2005 12 KPMG Analysis

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hand-to-mouth existence, is forced to make direct payments, often with a heavy burden of debt, to access healthcare from the market because the public provision is grossly inadequate or non-existent. High reliance on out-of-pocket spending is likely to pose health policy challenges related to financial risk protection in future years. Risk pooling insures people against such risks by transferring the costs of covering the sick to a large number of healthy people who need to pay only a small premium. India needs to focus on the potential ways to pool risk and reduce out of pocket expenditure, for which other sources of healthcare funding need to be stepped up.

The Healthcare Funding Gap

The key question that arises is, by how much, and who funds this gap? By developing various scenarios13 of the healthcare funding composition in India, we can acquire a clear perspective on the quantum of investments needed, and the implied growth rate that is required to be achieved by various segments of the economy that provide the healthcare funding. Assuming that the Indian economy will witness a real growth rate of approximately 7 percent until FY 2015, the projected GDP is likely to be INR 98 lac crores in FY 2015. The other important assumption would be that the total healthcare expenditure will remain within a range of 5 percent to 6 percent of GDP . Assuming that the claim payments constitute the healthcare funding, the contribution of public and private health insurance companies to healthcare funding would be approximately INR 16,800 crores for FY 2015 14, if the industry premiums grow at a (CAGR) of 25 percent to 30 percent between FY 2008 and FY 2015. Given that public expenditure has historically grown at a CAGR of 10.6 percent between FY 1995 to FY 2006 15 , it is assumed that the government expenditure shall continue to grow at approximately the same rate until FY 2015. In this case, government expenditure would amount to approximately INR 98,000 crores. Thus, in this baseline healthcare funding scenario in FY 2015, Out-of-Pocket Expediture (OPE) would constitue 77 percent or 80 percent (as depicted in Table No. 1) of the healthcare funding, depending on whether total healthcare funding is 5 percent or 6 percent of GDP respectively. If India wants to achieve a more desirable proportion of OPE, as in China (60 percent), it is likely to entail increased participation from public, private or a combination of these sectors, implying significantly higher growth in health funding.

13 Estimates based on NSS 1998; Report No. 441, 52nd Round, NSSO ; Finance and revenue accounts, New Delhi: Ministry of Finance, Govt. of India; 2004; Finances of state governments, Mumbai: Reserve Bank of India, Govt. of India 2005 Labor year book; Health information India, New Delhi: Ministry of Health and Family Welfare, Govt. of India; 2002. CSO 2004, New Delhi: National Accounts Statistics, CSO, Govt. of India; 2004. 14 Assuming a claims ratio of 60 percent 15 WHO National Health Accounts, KPMG Analysis

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Private Sector Insurance will be journey in itself and will largely be concentrated in Urban Areas in the initial few years. Rural and Semi Urban health insurance penetration will be Public Private Partnership led
Mr. Girish Rao, Managing Director, Swiss Re India

Table 1: Healthcare funding scenario

Analyzing the scenario I, where the required increase in funding to bring down the

OPE component is borne only by the Government, it would have to mobilize nearly INR 81,220 crores to INR 120,420 crores of additional funds in FY 2015. While the Government has initiated schemes such as the Rashtriya Swasthya Bima Yojana (RSBY) to reduce this funding gap, there is clealy a need for many such initiatives. Further, there exists a viable opportunity for private sector to shift a sizeable populace from a direct out-of-pocket expense model to a prepaid, riskpooling model as illustrated in scenario 2. Thus, in order to reduce the proportion of OPE in the overall healthcare funding there needs to be focused efforts from the public as well as the private sector along with the possible public private partnership (PPP). Examples of PPP could include a partner-agent model based community insurance schemes involving cooperative societies, government initiatives like RSBY scheme involving contribution by insurance companies as well.

Government expects to provide health insurance coverage to more than 30 crores Indian population in the next five years with recent initiatives like RSBY, Janashree Bima Yojana etc
Mr. Tarun Bajaj, Joint Secretary, Government of India

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Health Insurance in China

The Challenge
By the early 1980s, the collapse of community financing institutions in rural areas led to nearly 90 crore Chinese peasants being uninsured. In the cities, residents were covered by a city-based social health insurance scheme which covered only workers in the formal sector, leaving the others uninsured. In 2003, it was found that only 55.9 percent of urban and 21.4 percent of rural residents were covered.

The Approach
The government has been directing new investment with a view towards providing universal basic health care. Rural: In 2003, the government established the New Cooperative Medical Scheme (NCMS) a government run, voluntary insurance program that aimed to insure rural residents against catastrophic health expenses. Under this scheme, the central and the local governments would each subsidize 40 Yuan per farmer, with the farmer paying 10 Yuan as an annual premium for enrolment. Urban: Under the Urban Employee Basic Medical Insurance (BMI) introduced in 1998, employer coverage was financed through employer funded collective funds (6 percent of wages) and a beneficiary funded personal account (2 percent of wages); the central and local governments subsidize non-workers coverage.

Results
By the end of 2007 NCMS covered 86 percent of the rural population, and is , targeted to reach 100 percent by the end of 2008. BMI on the other hand covered 160 million workers and retirees in 2006, and is expected extend coverage to all urban residents by the end of 2010.

Lessons for India

India has recently launched the Rashtriya Swasthya Bima Yojana, similar to the Chinese NCMS, to cover 30 crore people below poverty line in 5 years However, it may be noted that while public insurance has played an important role in China, India does not have obligatory public insurance and is betting on the emergence of private micro-insurance policies Besides, the different forms of government in the two countries could result in different outcomes for similar schemes

Source: Yip, W., Mahal, A. The Health Care Systems of China and India: Performance and Future Challenges Health Affairs, Volume 27 Number 4 , ,

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The Rashtriya Swasthya Bima Yojana (RSBY)

The RSBY is a Central Government Scheme launched in October 2007 to provide health insurance to the below poverty line families in the unorganized sector.

Benefits
The Scheme envisages to provide smart card based cashless insurance cover upto INR 30,000 on a family floater basis Pre-existing diseases are covered Hospitalization and services of surgical nature and pre- and post-hospitalization expenses are covered.

Funding
The Central government bears 75 percent of the estimated annual premium of INR 750 and the cost of the smart card State Governments bear 25 percent of the premium and administrative and other costs of administering the scheme The beneficiary pays INR 30 per annum as registration/renewal fee.

Coverage
An estimated 6 crore Below Poverty Line (BPL) workers in all 600 districts in the country at the rate of 1 lakh workers per district are expected to be covered at 120 districts per year starting from FY 2008.

Role of State Governments

State governments engage in a competitive bidding process and select a public or private insurance company licensed to provide health insurance by IRDA.

Role of Insurer:
The insurer covers the benefit package as a cashless facility that in turn requires the use of smart cards issued to all members The insurer engages intermediaries with local presence such as NGOs, MFIs, etc. in order to provide grassroots outreach and assist members in utilizing the services after enrolment The insurer also provides a list of empanelled public and private hospitals meeting certain basic minimum requirements (e.g., size and registration) that are to participate in the cashless arrangement. These hospitals must set up a special RSBY desk with smart card reader and trained staff The insurer tracks claims, transfers funds to the hospitals and investigates in the case of suspicious claim patterns through on-site audits.

While RSBY has set aggressive goals for itself, the success of the scheme needs to be seen in India. But if the scheme is able to achieve its ambitious target, it can to play a dominant role in increasing health insurance coverage in India.
Source: www.rsby.in

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The Indian Health Insurance Industry

Figure 4: India Health Insurance market size and growth rate The Indian health insurance industry stands at INR 5,125 crores with only a small section of the total population (around 2 percent) being covered so far. With a compounded annual growth rate of around 37 percent (FY 2002-08) , health insurance industry in India is one of the fastest growing segments among other non-life insurance segments. High growth rates of health insurance industry have been driven by several factors such as changing healthcare scenario, socio-economic trends and regulatory changes in the industry in India as discussed below.
Source: IRDA

Key Growth Drivers

Description

Key Growth Drivers

Impact on Health Insurance Industry

Increase in popularity of health insurance in urban areas Healthcare costs are mounting, thus making treatment for common people increasingly unaffordable Larger afflicted patient population requiring treatment and medical procedures More informed and aware consumer, demanding better facilities Greater ability and willingness to pay for medical treatment and health insurance premium Per capita spend on healthcare is on the rise. This has created a demand for health insurance products Increased focus and distribution push leading to increased penetration of health insurance

Changing Healthcare scenario in India

Private healthcare is becoming predominant with proliferation of private hospitals in urban areas thus increasing healthcare costs

Changing demographic environment

Increasing prevalence of lifestyle diseases in the country Ageing Population

Increased awareness and affordability

Empirical evidence indicates that there is a positive correlation between health care spending per capita and proportion of population covered by health insurance. India has seen a rise in income levels and literacy lev- els. Increased focus on health insurance with the emergence of standalone health insurance companies Stronger push from Insurance companies along with increasing distribution reach Price detariffication in non-life insurance industry in India resulting in the removal of cross-subsidization of health insurance policies in India Government initiatives like RSBY scheme, Janashree Bima Yojana, National Rural Health Mission etc to provide extensive health insurance access

Push factor by insurance companies

Favourable Regulatory environment

Increase in the health insurance premium

Government focus on health insurance

Increased health insurance awareness and coverage

Going forward, these growth drivers are expected to continue to drive the growth of the health insurance industry in India.

15 IRDA Journals

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The health insurance market will balance itself out even in the midst of the recent financial crisis- while this meltdown has impacted the sale of group and corporate policies; we expect the retail market to increase substantially
Dr. Shreeraj Deshpande, Vice President Health Insurance, Bajaj Allianz General Insurance Company Ltd.

Future Outlook
The future outlook of the health insurance industry remains positive. The industry witnessed a growth rate of 52 percent17 in the first quarter of FY 2009 compared to FY 2008. While the industry is witnessing some decrease in the group health insurance business due to the current financial crisis, the retail market is expected to grow in the near future. Overall, the health insurance industry in India is expected to grow at a CAGR of 25 to 30 percent till FY 2015 to reach the market size of approximately INR 28,000 crores by FY 2015 18. To be able to increase the market size by around INR 22,900 crores or more in seven years time, the industry participants would require to make concerted efforts in this direction. The building blocks have to be put in place by the key participants of the health insurance industry and the issues and challenges faced by them have to be addressed in defining these concerted efforts, for achieving the target market size and increased penetration for health insurance in India.

Key participants in the Health Insurance industry

Health insurance industry in The health insurance industry comprises several key players across its value chain. India is significantly under-penetrated and would continue to Figure 5: Key participants in the Health insurance value chain grow despite current financial turmoil
Mr. Sandeep Bakhshi, Managing Director and CEO, ICICI Lombard General Insurance Company Ltd.

17 IRDA Journals 18 Industry Discussions, KPMG Analysis

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Figure 6: Market share of key players in Health insurance industry (FY 2008)

A. Insurance companies:
The robust growth of health insurance premium income in recent years has helped ensure that health insurance is considered a focus segment by most Insurance companies. Health insurance is currently being offered by non-life insurance companies, specialized health insurance companies and life insurance companies in India. While health insurance forms a low proportion of the total business for life insurance companies in India (0.2 percent of the individual regular premium for FY 2008), it forms a significant proportion of the business for non-life insurance companies (approx.18 percent of the total Gross Written Premium for FY 2008).19 Star Health and Allied Insurance and Apollo DKV Insurance are the only two

Source: IRDA

specialized health insurance companies in India till date. In July 2008, Bupa Group, a leading international health and care company and Max India Ltd., formed a new partnership to enter the health insurance market in India20. Major health insurers from overseas, such as Aetna, CIGNA as well as other multi-national life and nonlife companies, have also evinced interest in entering the Indian health insurance market

Figure 7: Market share of TPAs (FY2007)

B. Third Party Administrators (TPAs)

TPAs were established as a result of regulations introduced in FY 2001. Their key responsibilities include providing administration support for insurers, such as admission and settlement of claims, and establishing provider networks of hospitals that policyholders can utilise. Many TPAs provide a wider variety of value added services such as ambulance service, medicines and supplies, information about health facilities, hospitals, bed availability, and have moved beyond the boundaries that they were originally intended to fulfil. As of March 2008, there were 28 TPAs in operation, though the top three have over 50 percent share of the market21. Interestingly, as insurers have started

Source: IRDA

analyzing their claims experience, some of them have realized that by using a TPA for the admission and settlement of claims, they have infact outsourced their most important activity. As a result, some insurance companies have either established or are intending to establish their own in-house claims operations. Further, reinsurers like Munich Re and Swiss Re have taken stakes in Paramount Healthcare and TTK Healthcare respectively, whilst Reliance General Insurance has acquired a majority stake in MediAssist

19 IRDA 20 Insurance Business Review, July 2008 21 IRDA, KPMG Analysis

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Reinsurers can bring their deep insight of global experiences, data on health insurance worldwide and can help Indian players define their marketing strategy through an appropriate product / customer segment grid
Mr. Girish Rao, MD, Swiss Re

C. Reinsurers
Reinsurers play a critical role in the health insurance vaue chain. They take on part of the risk that insurers assume from their customers so that the insurer can assume greater individual risks. In the past, most of the top 50 global reinsurers operated indirectly from their overseas offices by sharing the reinsurance risks assumed by the General Insurance Corporation of India. One reason for this was that global reinsurers felt that rates for reinsurance products were inadequate and not at all reflective of global market conditions22. However, with the entry of large players into the Indian market, this seems to be changing. Apart from providing reinsurance support, reinsurers can also support insurance companies in defining their product and customer segments based on their global experience.

D. Healthcare providers
The healthcare industry is estimated to grow at about 15 percent every year for the next four to five years.23 Increased favorable regulatory drivers, changes in demographics and changes in disease profile have led to the rapid demand for quality healthcare provision. Private players have invested significantly in this market, leading to corporatization or emergence of hospital chains. However, the focus of these players has been largely urban as this is where the infrastructure and patient pool is available for these players. Examples include the Apollo group, Manipal, Fortis, Max and Wockhardt hospitals. In fact, 84 percent of hospital beds are today located in urban areas, whereas 75 percent of the population still resides in villages24. This selective concentration of health care providers is a major concern to be addressed, especially since studies have shown that those living in rural areas spend about as much on healthcare as those in towns. Currently healthcare providers are not being regulated in India with regard to standardization and accreditation norms. This has resulted in each healthcare provider being significantly different from the other in terms of the healthcare costs, processes and quality amongst others.

E. Distribution channel partners

Agents and brokers are the key distribution channels for selling retail and group health insurance respectively. Bancassurance is also evolving as an important distribution channel for retail health insurance. The usage of direct distribution channels like the internet, telemarketing etc is limited in India currently, but will gain importance as the industry matures. This form of distribution is popular in the developed countries and is catching on in India as well.

22 Indian Health Insurance- A major opportunity Watson Wyatt , 23 Foreign Investments in Hospitals in India: Status and Implications, WHO India 24 The Private Health Sector in India : Nature, Trends and a Critique CEHAT ,

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F. Regulators
The Insurance Regulatory and Development Authority (IRDA) regulates, promotes, ensures orderly growth of the insurance and the reinsurance business in India and protects the interests of the policy holders. Currently, health insurance forms a part of the non-life insurance business and is being governed by the non-life insurance regulations in India. The IRDA is considering announcing separate guidelines for health insurance to promote sustainable growth of the health insurance in India. The IRDA has also recommended lowering of the minimum capital requirement for stand-alone health insurance companies from INR 100 crores to INR 50 crores25. This move is expected to encourage the entry of stand alone health insurance companies in India, and may also facilitate the emergence of Regional health insurance companies in India. Despite a well established industry structure in the health insurance industry in India, the industry has not been able to achieve its true potential.

Issues and Challenges existing in the Health Insurance Industry in India

The significant economic growth in India at the turn of the millennium has left its medical care and health insurance systems struggling to keep up with the growing healthcare demands of its people. India is characterized by a growing (but still relatively small) middle class and a large (but shrinking and mostly rural) nearsubsistence population. Given the population, geographical size of the country, different levels of evolution within the urban and rural strata of the society, it is not surprising that players are faced with various challenges in increasing health insurance coverage.

25 New Health Insurance Law on the Anvil, Business Standard, October 2008

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Issues and Challenges faced by various participants of the Health Insurance Value Chain

Thus, there are significant challenges being faced by the existing participants of the health insurance value chain which have impacted the growth of the health insurance industry in India. While these challenges need to be addressed to increase the health insurance coverage in India, there is also a need to understand the challenges faced by the Indian consumer in the existing market environment.

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Voice of the Indian Consumer

The endeavor of health insurance is to provide consumers with the options or products that can address issues of prevention and treatment of illness, lead to wellness and thereby help them to lead longer, healthier and happier lives. Thus, understanding the voice of the Indian consumers is critical to understand the health insurance needs of the consumers.

Methodology
To understand the voice of the Indian consumer, KPMG commissioned IMRB International to carry out a Qualitative Consumer Research study. The study involved 13 Focus Group Discussions (FGDs) across six cities (two cities each in metro, Tier 1 and Tier 2 26 segments) in India. The cities included Mumbai, Chennai, Ahmedabad, Lucknow, Cochin and Patna. There were around 6-8 participants with diverse professions (salaried as well as self employed) per group. Separate FGDs were conducted for the holders and non-holders of health insurance in Socio-economic class (SEC) A/B1 (Upper strata) and SEC B2/C (Lower strata)27. It was found that while the consumers differ significantly in their profiles, they are homogenous with respect to their health insurance awareness and needs which were captured during the consumer research. The study also revealed that characteristics of consumers with and without insurance covers differed significantly as shown below:

Typical characteristics of a consumer with an insurance cover Moderate level of awareness, knowledge and education Profession that is either highly paying or has consistent income stream Tax paying citizen Prefers to secure the future, and is cautious with financial matters Likes to plan things and organize them Views insurance from security as well as investment standpoint Likes to strike a balance between risk and returns.

Typical characteristics of a consumer without an insurance cover Low level of awareness, knowledge and education Earns low level of incomes or has no surety of regular incomes; typically unemployed or employed in lower order jobs Accords low priority to insurance, primarily due to lack of funds and presence of other investment needs Few dependants Focuses on immediate future needs rather than distant ones Security about future means educating children and making them self dependent.

26 Metro Cities with population more than 40 lac , Tier 1 - Cities with population between 15 lac and 40 lac , Tier 2 - Cities with population between 5 lac and 15 lac 27 SEC classification is based on Chief wage earners (CWE) occupation and education level SEC A: CWE is graduate/ post graduate and is primarily employed at executive positions or is an industrialist/businessman SEC B: CWE is a post graduate or below and is primarily employed at clerical/supervisory level or is a small businessman SEC C: CWE is educated till class XII and is primarily employed at clerical/supervisory level or is a skilled worker/petty trader/shop owners

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Perception about Health Insurance in India

The focus group discussions have revealed several interesting observations. While a significant portion of consumers are aware of health insurance and its importance, there are several perceptions both negative and positive, that have a strong influence on their buying decisions. Interestingly, consumers across SEC segments and cities share many of these views. This demonstrates that addressing some of the negative perceptions and capitalizing on the positive ones are likely to play a vital role in increasing health insurance coverage in India. We discuss them in detail below. Figure 8: Perceptions about Health insurance in India

Characteristics have been classified into Core, Primary and secondary segments based on the level of emphasis with which these characteristics were mentioned during the focus group discussions

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Negative Perceptions: Impediments to buying Health Insurance Claims are not guaranteed. Companies put their best foot forward to sell a policy, but lack enthusiasm during claims processing.
SEC B2/C, Tier 2 city, Non -holder of health insurance

The study has thrown light on several possible reasons that consumers have cited for not buying health insurance in India. Some of the most pertinent ones include: a. Problems with Claims processing: Problems with claims processing, experienced either firsthand or by peer groups, deter consumers across segments from buying health insurance. i. Consumers believe that reimbursement of claims from insurance companies, for cash paid in hospitals, require numerous follow-ups ii. In case of cashless transactions, the perception is that there is a need to submit several documents iii.Another predominant perception is that insurance companies reject claims on dubious grounds, rendering the insurance policy futile. Such instances discourage consumers from investing in health insurance

Offered only mainly for big critical diseases.I would rather die than have these diseases.
SEC B2/C, Tier 2 city, Non-Holder of health insurance

policies. Negative experiences with claims processing could also lead to negative publicity, making insurance policies less popular b. Limited product coverage: Health insurance plans do not cover outpatient care and certain ailments such as diabetes, blood sugar, eye and dental surgeries. The view is that the policy covers health problems that have a low probability of occurring, rendering the premium paid futile if hospitalization does not occur in a particular year c. Less importance given to health insurance: For most consumers, the need to save and invest for a home, education, vehicle, childrens marriage and other lifecycle needs to take precedence over the need for a health insurance policy. A misconception prevalent among many consumers is that the return on investment in health insurance is low, with little reward if they make no claims. In addition, several consumers, particularly younger age groups, tend to believe that people over 45 years of age who are more prone to ailments, need a health insurance policy. There is therefore a tendency to invest in a health insurance policy only when extra funds are available, or if consumers have faced hardships in the past during a medical emergency. One of the reasons for this could be the confusion created by multiple participants about insurance being an investment/savings product or risk transfer mechanism in the consumers mind.

Meant for people over 45 years who are prone to diseases

SEC A/B1, Tier 2 city, Non-holder of health insurance

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d. Limited options of doctors and hospitals: Insurance companies have their own network of hospitals and seldom reimburse procedures performed in hospitals outside of the network. i. In the event that a consumer uses a non-network hospital during an emergency, the policy becomes ineffectual ii. Further, Indian consumers tend to establish a comfort level with doctors. They are reluctant to switch to other providers if their doctors are not part of the network

Agents are not able to advice properly, they are less knowledgeable
SEC A/B1, Tier 2 city, Non-holder of health insurance

e. Agent and Payment Related Issues: Insurance advisors do not suggest suitable options to consumers, hide information, are unaware of the products they sell or coerce them into buying policies that are not suited to their needs. This has created discontent among consumers that agents do not act in their interest and instead of treating advisors as trusted partners, several consumers are wary of them. Another common grievance of consumers is that there are few outlets to deposit premiums. Moreover, while companies have been encouraging the use of internet to pay insurance premiums, consumers in non-metros make limited use of the internet. While these reasons for not buying health insurance are similar for SEC A, B and C Consumer segments, there are several other aspects where these reasons differ for SEC B2/C, which are cited below: a. Complicated policy document: Consumers find it difficult to understand the various jargons and paperwork involved in the health insurance policy b. Limited awareness: Limited awareness about health insurance has led to nonconsideration of this option to a significant number of people c. Expensive: Consumers perceive that health insurance policies are expensive

Difficult to understand its various jargons and paperwork

SEC A/B1, Tier 2 city, Non-holder of health insurance

The premium is expensive. It is only meant for people belonging to high class or upper middle class
SEC 2/C, Tier 2 city, Non-holder of health insurance

and are meant for the rich and the educated only. It has been found that consumers with a health insurance cover share similar views as those without, in terms of their skepticism towards claims processing, limited coverage in terms of products, and doctors and network hospitals. While this skepticism has been based on experience, many of the other negative perceptions stem from a fundamental lack of awareness about health insurance its importance, products available and the processes.

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Positive Perceptions: Perceived benefits about Health Insurance An insurance policy cover ensures lower stress during emergencies. One can focus on treatment of the disease rather than worrying about arranging funds
SEC A/B1, Tier 1 city, Holder of health insurance

Despite the negative perceptions of people about health insurance, there are clear benefits of health insurance as perceived by consumers who are covered under a policy. a. Cashless Hospitalization: One of the key advantages of health insurance has been found to be cashless hospitalization. This gives the insured the benefit of starting the treatment once his pre-authorization is approved by the insurance company/TPA. In addition, this gives the family the time and peace of mind to concentrate on the patient and the treatment and relief from arranging for funds b. Tax benefit: Tax benefits on investments in health insurance for self and dependants becomes a major driver for consumers to invest in a policy c. Financial Independence and Security: Consumers consider health insurance

Insurance is preferred as it acts as a tax saver scheme. Also, the premium is quite small as compared to the benefits which accrue through this
SEC A/B1, Metro, Holder of health insurance

to be a means of ensuring their financial independence and security. Health insurance saves them from borrowing money from other people during an emergency and helps preserve other savings for later use. While consumers who do not hold health insurance were found to be aware of these benefits, the pain points overpowered the benefits perceived. However, they were found to be open to the idea of buying health insurance provided the insurance companies revise their offerings to match their expectations of an Model health insurance offerings.

Model Health Insurance Offerings What the Indian Consumer wants

How different is the Model Health Insurance Offerings that the consumers have envisaged from the existing product offerings? The findings relate to the issues

As soon as there is an emergency, an agent should be there throughout with the insured persons to take care of all the formalities
SEC B2/C, Metro, Non-holder of health insurance

that consumers face in the existing health insurance policies. Largely, new ideas of consumers were around the following themes: a. Ease of claims disbursement: Currently, consumers find the claims disbursement process to be vague, fraught with problems and with no surety of reimbursement of claims. Instead, they wish to have a hassle free claims disbursement process, in which the insurance agent is present at the hospital to take care of the formalities during an emergency. Use of medical cards that are like credit cards, which can swiped at hospitals, may prove to be an innovative and hassle-free process

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b. Increased hospital network coverage: Consumers prefer that their insurance policy to cover a greater number of hospitals and certain Doctors, particularly Family Doctors in their network c. Product and Pricing Innovation

Specialized plans which cover usual visits to the gynecologist and tests done for specific reason
SEC A/B1, Metro, Holder of health insurance

i. Product Innovation i. Coverage of incidental costs and more diseases: While hospitalization forms a substantial cost in medical care, pre-hospitalization entails visits to specialists, diagnostic tests etc., and post-hospitalization care also entail high costs. Therefore, coverage of these expenses is desirable. Consumers also expect coverage of diabetes, blood sugar, dental ailments, surgeries such as eye surgeries, root canal etc that do not require hospitalization, and specialized coverage for women to be part of their Model Health Insurance offerings ii. Long term policies: Consumers wish to take longer-term health

A scheme can be launched where for once a large premium is taken for 2530 years for the whole family and yearly top ups like mobile plans
SEC B2/C, Tier 2 city, Non-holder of health insurance

insurance policies compared to the existing one-year policies. Consumers also mentioned a need for bundling health insurance with life insurance iii.Simple policy documents: Small pointers such as printing policy documents in local languages can be very useful in helping consumers understand their health insurance policy better. Consumers also want the policy document to be simple and easy to understand ii. Pricing Innovation: Currently for most policies, the frequency of payment of premium is yearly. However, several consumers have suggested an alternative possibility of a one-time premium with life-long coverage. This is especially preferred by self-employed people who could have a spurt in earnings during a particular year, which can be invested in a policy as a onetime investment. Another alternative is the payment of a one-time large premium, followed by yearly top-ups to cover a family for a long period d. Regular benefits to insurance holders: Apart from the coverage benefit to the insured, consumers also demanded regular benefits. Annual health check ups, substantial reduction in premium for a no claim year etc, were some examples where consumers felt that they could gain some benefit from their association with the health insurance company. With the understanding of the consumers views about the Model Health Insurance Offerings and the reasons for not buying health insurance, the key for increasing coverage of health insurance in India is to design and implement strategies to design health insurance offerings that meet at least some of the consumer preferences and address some of the challenges faced.

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Reaction of Consumers to new models of Health Insurance

With the recent spurt in growth of the health insurance market, companies are keen to try out different plans to ensure extensive penetration of health insurance in India. To assist the Indian companies in this regard, we attempted to test the acceptability of two successful global health insurance models amongst Indian consumers. The consumers were exposed to two new types of health insurance plans to gauge their willingness to invest in these types of plans.

Globally successful health insurance models - Managed Healthcare and Health Savings Account
Managed Healthcare:
International trends indicate that insurance companies have been able to influence healthcare providers to cut costs and improve the quality of their services through the adoption of the managed healthcare model. It is the most popular health insurance model in the US. Typical features include: Integration of health care service delivery and healthcare financing functions Health care service delivery includes either tie-up with existing providers or building ones own provider network and is intended to reduce unnecessary health care costs. This is done through a variety of mechanisms including economic incentives for physicians and patients to select less costly forms of care, programs for reviewing the medical necessity of specific services, increased beneficiary cost sharing, controls on inpatient admissions and lengths of stay, the establishment of cost-sharing incentives for outpatient surgery, selective contracting with health care providers, etc. Consumers have to take services only from the network in order to have their healthcare paid by the plan. Health Savings Account (HSA): Various countries like the US, South Africa, Canada, Singapore, China and Hong Kong have experimented with this concept and have achieved varying degrees of success in HSAs being accepted as a viable and long-term option for financing healthcare expenses. For example, in South Africa, it forms around 50 percent of the health insurance market. There is no uniform architecture that the various proponents of HSA have adopted. Each country has adopted and structured it as per the needs of their people. Typical Features: Tax-exempt savings account similar to an Individual Pension Account, but earmarked for medical expenses. Deposits in the account are tax-exempt for the account holders and can be easily withdrawn to pay for routine medical bills HSA works in conjunction with a special high-deductible health insurance policy resulting in the provision of comprehensive health insurance coverage at the lowest possible net cost The insurance company pays for major medical expenses (covered expenses in excess of the deductible amount) while the HSA account holder pays for the minor medical expenses with tax-exempt money from his HSA. Unutilized balances in the HSA can be accumulated towards individual retirement accounts.

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Managed Health Care Concept

This plan controls the financing and delivery of health services to members who are enrolled in this plan. Under this plan there is an existing contract with health service providers like hospitals, doctors thus forming a provider network. Members will have to take services from this network only in order to have their healthcare paid by the plan. In case a member takes service from a body outside this network, the plan will not pay for their healthcare unless it was pre authorized or an emergency. Managed care Plan has been particularly popular in Tier-2 cities

Plan 1: Managed Healthcare

As a concept, this plan was liked and appreciated by most consumers. However, people were quite apprehensive about the clause of pre-authorization in an emergency.

Affirmative points about the plan:

a. Cashless hospitalization: Consumers appreciated that there would not be any hassle of arranging for cash at a time when the focus should be on treatment. This would also avoid the tedious process of following up with insurance companies for claims b.Right treatment: Doctors will be encouraged to use the right treatment instead of administering needless procedures and tests in an attempt to make some more money. Patients will not have to face the trauma of unnecessary treatments and they would be assured that the right treatment is being given to them c. Emergency cases/pre authorized to be considered: It was understood that accident cases will definitely be taken as emergency case, and authorizations in such cases would be a big relief for patients.

Apprehensions about the plan:

a. Fear of treatment compromise: Many consumers shared a feeling that in order to save money for the insurance companies , network hospitals will try and keep people away from the hospitals. Even if they get admission , they will try and hasten the time spent in the hospital, thus compromising on the treatment regimen b.Restrictions in the choice of hospital/doctor: Consumers are comfortable in receiving treatment from their family doctor or doctors they are familiar with. Also, there may be smaller hospitals which people find easy to access owing to their convenience. These doctors and hospitals might not be part of the insurance company network, and people fear that they may be forced to go to faraway places for treatment c. Unclear clause of pre-authorization or authorization in an emergency: While consumers viewed this as one of the positive points about the plan, they also need more clarity on the process of pre-authorization. Many were skeptical and needed to know how companies would define an emergency. Overall, this plan had higher acceptance amongst SEC A/B1 consumers and tier 2 cities.

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Health Savings Account Concept

This plan allows members to create funds or savings accounts with banks / insurance companies that are to be used for healthcare expenses only. In this plan there are two parts Health insurance plan Medical savings account Individual will be contributing to medical savings accounts regularly and withdraw in case of health emergencies. The user is generally provided with a special debit card which he can use to pay for medical expenses from his medical savings account. However if the balance in the account runs out, user has to pay from his own pocket. The premium here will be divided into two components: One used for health insurance which will provide comprehensive hospitalization, critical illness and out-patient care Second part will be for investment that can be sheltered from taxation until withdrawn Deposit to medical savings account may be made by any policyholder, by an employer on behalf of a policyholder or any other person. However if funds are withdrawn for a reason other than a qualified medical expense, the withdrawn funds can be liable to income tax and penalty. Once a person reaches retirement age or becomes disabled, funds can be with drawn without penalty.

Plan 2: Health Savings Account

Tax savings emerged as the most dominant advantage of this plan. The general feeling was that the lock-in period is lengthy and if reviewed, would make the plan much more customer-friendly

Affirmative points about the plan:

a. Tax savings: The plan was appreciated for the option of tax saving and was well received by tax payer segment b. Good balance of saving tax and assuring security: The plan was appreciated for the dual benefit of security and tax saving. The concept appealed to respondents since it offers consumers the flexibility to have a check over their own money.

Negative points about the plan:

a. Low interest rates: The concern of getting lower returns was prevalent in the minds of respondents. They expect to get higher returns to make it more appealing b. Limit on the insurable age of consumer: Respondents were of the opinion that their insurance cover should be for life since the money would be locked in the scheme for a very long time. However, they also feared that premiums might be high as they get older c. Not suitable for older investors: Respondents were of the opinion that to avail the total benefit of such a scheme, it is important that one starts investing at an early age. Such a scheme beyond middle age would provide no benefit to them. The HSA Plan has been particularly popular in the Metros

Overall, this plan had higher acceptance amongst SEC A/B1 consumers and metro cities. The plan was also found to have higher acceptance amongst salaried consumers as it was viewed as a tax saving tool.

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Future enablers and action steps for the health insurance industry
Figure 9: Pillars of change and Enablers for growth for health insurance industry

From the future perspective, several initiatives are expected to be instrumental in overcoming the challenges existing in the health insurance industry in India and moulding the future of the industry. KPMG believes that achieving the future growth potential is dependent on the ability of the key stakeholders viz. Government, Regulator, healthcare providers, insurance companies, NGOs/SHGs, TPAs, distribution channel partners, health centers and the media to strengthen the industry around the Pillars of Change and Enablers for Growth . While the Pillars of Change are critical for building a robust health insurance industry, the Enablers for Growth are critical for the propelling the growth of the industry in the future.

Figure 10: Key stakeholders of the health insurance industry

Insurance companies must recognize that health is not a top-of-mind recall for most customers. It is essential that education on health and wellbeing is imparted as part of the distribution process to ensure that wellness and health promotion become a part of the customers lifestyle and reduce long term health risks.
Mr. Nimish R Parekh, Founder & Director, Wellinformed Healthcare

This section discusses the expected Pillars of Change and Enablers for Growth of the Health Insurance industry in India and some of the pertinent action steps which need to be considered by various stakeholders to implement these changes.

Pillars of Change
Pillar 1: Consumer Awareness
The Indian health insurance industry faces a challenge of low levels of awareness among consumers of the needs and potential benefits of a health insurance policy, and this lack of awareness creates a hindrance to expanding coverage. Unless the Indian consumers are made aware of the health insurance concept and its benefits, the industry is not likely to be able to achieve its growth potential.

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Increasing awareness is critical for increasing health insurance penetration. All the stakeholders including Insurance companies, Healthcare providers, Regulator, Government, Industry bodies, TPAs must come together to increase awareness of Health Insurance in India
Mr. C. Chandrashekhar, Chief Marketing Officer, Apollo DKV Insurance Company Ltd.

Consumer research has revealed two important aspects related to the awareness of the consumers about health insurance: The consumers have limited awareness about the health insurance products, their functionalities and their features and benefits The consumers who are aware about health insurance have several negative perceptions about the same, which impact their purchase decision.

Thus, the objective of creating consumer awareness needs to be two fold: Increase awareness of the health insurance concept, its functionalities, features and benefits Develop positive perception about health insurance amongst the Indian consumers. To achieve these objectives, some of the key action steps for the various stakeholders include:

Currently, insurance companies have minimal interactions with the consumers directly. They should explore the means of increasing their communication levels with their customers
Dr. Narottam Puri, President Medical Strategy & Quality, Fortis Healthcare Ltd.

Apart from these action steps, stakeholders should support the Government, the regulator and the insurance companies in increasing health insurance awareness in India.

We need to use the high awareness levels of life insurance amongst the citizens in the country to propel the Health Insurance sector,the community needs to know the gross truth that we take life insurance to secure the lives of those we leave behind but health insurance is a step we take to increase our life span of those who are dear to us
Mr. Vishal Bali, CEO, Wockhardt Hospitals Group, India

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Pillar 2: Standardization of Healthcare costs and Accreditation norms Standardizations and Accreditations of healthcare providers are necessary to improve quality of healthcare in India
Dr. Sushil Shah, Chairman, Metropolis Health Services India Ltd.

An off shoot of the lack of standardization of healthcare providers is the differing qualities of service, costs, procedures, treatments across different providers. This has resulted in low customer satisfaction, unethical practices such as long hospital stays, expensive treatments and drugs. For building a strong and consistent healthcare infrastructure, standardization of healthcare costs and introduction of accreditation norms is a pre-requisite. Healthcare in India is the responsibility of each Indian state. There have been attempts in some states to institutionalize uniform standards for hospitals. Apart from this some efforts have been made by consumer bodies, groups of health professionals, hospital organizations and non-governmental organizations to help medical bodies adopt standards for accreditation. But what is lacking, is a concerted effort to monitor the functioning of hospitals in India and the stringency of compliance to established standards28.

Figure 11: Standards and Accreditations for healthcare providers in India

Source: Accreditation of hospitals: An Overview: Dr. Garima Chandra, Express Healthcare Management

28 Accreditation of hospitals: An Overview: Dr. Garima Chandra, Express Healthcare Management

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Some of the key initiatives and action steps for the various stakeholders include:

Unlike the insurance sector, there is no regulatory body for healthcare; the pressing need in healthcare sector today is regulated and organized growth
Dr. Shreeraj Deshpande, Vice President Health Insurance, Bajaj Allianz General Insurance Company Ltd

There are significant amount of issues with pre-authorization process of insurance companies. Companies should work towards standardizing the authorization forms, treatment procedures and medical implants etc
Dr. Narottam Puri, President Medical Strategy & Quality, Fortis Healthcare Ltd.

Health insurance companies should come together to work jointly with health care providers. This will ensure uniformity and transparency in treatment and outcomes, costs and will help product design immensely

C. Chandrashekhar, Chief Marketing Officer, Apollo DKV Insurance Company Ltd.

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Pillar 3: Healthcare Infrastructure

For the growth of health insurance coverage in India, there is a need to develop a network of healthcare infrastructure to deliver quality healthcare to the consumers. Some of the key initiatives and action steps for various stakeholders to improve healthcare infrastructure in India include:

Healthcare providers and Health Insurance companies should view each other as partners in ensuring quality healthcare to all the Indians
Mr. Sandeep Bakhshi, MD & CEO, ICICI Lombard General Insurance Company Ltd.

Private hospitals will continue to focus on urban areas. Government needs to play a greater role in providing healthcare access in rural areas
Dr. Narottam Puri, President Medical Strategy & Quality, Fortis Healthcare Ltd.

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Pillar 4: Data and Information Exchange

Building a comprehensive and sustainable data repository and information exchange mechanisms is critical for building a robust health insurance industry in India. The comprehensive database could help in the development of new products, analyzing existing and emerging trends, promoting new research, testing of new or alternative hypotheses and methods of analysis. IRDA has already initiated steps in this direction. Tariff Advisory Committee (TAC) has been designated by IRDA as the data repository for the non-life insurance industry in India. Presently, the transaction level data on Motor, Health and other lines are being collected for the repository. The summary reports for health insurance (2003-04, 2004-05 and 2005-06) are also available in the public domain on TAC's website. While these steps mark the beginning of the data and information exchange system in India, there is still a long way to go. Various stakeholders in the health insurance industry have significant amount of information around consumers, disease patterns etc which is not being shared amongst them. Some of the key initiatives and action steps for various stakeholders to help ensure data and information exchange include:

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Health Insurance is not so much about insurance as it is about health care. You cant count your premium without paying attention to a persons health status and long term health risks
Mr. Nimish R Parekh, Founder & Director, Wellinformed Healthcare

Enablers for Growth

Enabler 1: Product and Pricing Innovation
Product and pricing innovation is expected to be the key driver for penetration of Health Insurance in India. Based on the Consumer Research it was evident that the Indian consumers desire new products to be introduced in the Indian market. Development and introduction of new products at the optimum price has the potenial to not only drive the penetration of health insurance in India, but also help reduce the claims cost being incurred by existing insurance companies in India. Product and pricing innovation increase the options available to the consumers in terms of number of products available, diseases/illnesses covered, improve customer satisfaction, provide better access to cost effective and quality healthcare and reduce fraud. Some of the key initiatives and the action steps for the various stakeholders include:

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The accent of healthcare providers and health insurance companies in India must move from being 'curative' to 'preventive'- this will ensure good health among common people and be less expensive in the long run
Dr. Sushil Shah, Chairman, Metropolis Health Services India Ltd.

Case study: Wellness Products offered by Insurance companies

Offered by Insurance companies like CIGNA, Philadelphia Insurance, United Healthcare in the US and BUPA, Prudential in the UK Features: Covers benefits that encourage healthy behaviors or lifestyle changes intended to improve health, quality of life and result in avoiding the costs associated with behavior-induced chronic illness Offers financial incentives such as lower premiums, co-payments or deductibles for participation in a wellness program Examples: Nutrition education, physical activity education, weight loss, stress management, maternity management, diabetes education, and asthma and heart healthy lifestyle modifications Win-Win situation:

In the last decade or so there has been a sea change in the consumer's perception about Health Centers (weightloss/slimming). They have come to acknowledge their significant role in the preventive healthcare domain, as opposed to a belief held earlier that one should go to such centers only to look better. In keeping with this realization, health centers and health insurance companies can work together to offer these services to the Indian consumers
Mr. Narinder Kumar, Group CFO & Company Secretary, VLCC Health Care Ltd.

Advantage for consumers: Products/ health plans are offered at discounted rates Advantage for insurance company: The reduction in risk for each individual Preventive more than curative; leading to lower claims ratio

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Technology like mobile phones can play a significant role in increasing penetration of Health Insurance in India
Mr. Sandeep Bakhshi, MD & CEO, ICICI Lombard General Insurance Company Ltd.

Enabler 2: Technology
As a transaction-intensive industry, health insurance is expected to continue to benefit from the efficiencies that technology brings to traditionally paper-driven processes. But the industry is at a crossroads: It not only must improve existing processes, it must also develop new processes and capabilities to meet new customer demands. There are various touch-points where technology can help create and monitor processes in a much more efficient manner. Some of the key initiatives and the action steps for the various stakeholders include:

Addressing how healthcare access and insurance can be provided to the non-urban population is one of the most critical aspects. Using technology such as data mining and monitoring patient records, it is possible to identify niche audiences and create customized products- this will eventually help in increasing penetration
Mr. Srivathsan Aparajithan, Head- Healthcare Business Solutions, IBM India

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Enabler 3: Innovative Distribution Channels

To increase the penetration of Health Insurance in India, there is a need to explore innovative distribution channels. Some of the key initiatives and the action steps for the various stakeholders include:

Tie ups with health clubs, rotary clubs and other social organisations is a good way of increase penetration and awareness of health insurance, given the nature of the captive audience
Mr. Vishal Bali, CEO, Wockhardt Hospitals Group, India

Product bundling can be the key for increasing penetration of Health Insurance in rural areas. Health Insurance can be bundled with products of other companies with significant rural presence. Rural banks can also be key to help spread the reach and reduce distribution costs
Mr. C. Chandrashekhar, Chief Marketing Officer, Apollo DKV Insurance Company Ltd..

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Summary

The industry has grown at a CAGR of 37 percent over the last 6 years and is poised to grow at a CAGR of 25-30 percent to reach a market size of approximately INR 28,000 crores by FY 2015, which translates to an incremental growth of around INR 23,000 crores in the next 7 years. KPMG believes that achieving this growth is dependent on the ability of the key stakeholders viz. Government, Regulator, healthcare providers, insurance companies, NGOs/ SHGs, TPAs, distribution channel partners, health centers and the media to strengthen the industry around the Pillars of Change and Enablers for Growth. While the Pillars of Change are critical for building a robust health insurance industry, the Enablers for Growth are critical for the propelling the growth of the industry in the future. In a nutshell, the most critical paradigms include: Increasing customer awareness about health insurance and its benefits Standardization and accreditation of all healthcare providers to help ensure quality healthcare Enhancing healthcare infrastructure especially in tier 2/3 and rural areas in India Building a comprehensive and sustainable health insurance data repository like a credit information database managed by Credit Information Bureau (India) Ltd. Encouraging innovation around products, channels and usage of technology. Thus, there is a need for concerted effort by all the stakeholders of the health insurance industry to collaborate and pave the road ahead for the Indian health insurance industry.

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List of Abbreviations

BPL CAGR CGHS ESIS FGD FY GDP GWP INR IRDA MFI NCMS NGO OPE OTC PHC PPP PSU RSBY SEC SHG TAC TPA

Below Poverty Line Compounded Annual Growth Rate Central Government Health Scheme Employees State Insurance Scheme Focus Group Discussion Financial Year Gross Domestic Product Gross Written Premium Indian Rupee Insurance Regulatory and Development Authority Microfinance institutions New Cooperative Medical Scheme Non-Government Organization Out-of-Pocket Expenditure Over the Counter Primary Health Center Public- Private Partnership Public Sector Unit Rashtriya Swasthya Bima Yojana Socio Economic Class Self Help Group Tariff Advisory Committee Third Party Administrators

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About KPMG in India

KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 145 countries and have 123,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International, a Swiss cooperative. Each KPMG firm is a legally distinct and separate entity and describes itself as such. The Indian member firms affiliated with KPMG International were established in September 1993. As members of a cohesive business unit they respond to a client service environment by leveraging the resources of a global network of firms, providing detailed knowledge of local laws, regulations, markets and competition. We provide services to over 5,000 international and national clients, in India. KPMG has offices in India in Mumbai, Delhi, Bangalore, Chennai, Hyderabad, Kolkata and Pune. The firms in India have access to more than 3000 Indian and expatriate professionals, many of whom are internationally trained. We strive to provide rapid, performance-based, industry-focused and technologyenabled services, which reflect a shared knowledge of global and local industries and our experience of the Indian business environment.

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About CII

The Confederation of Indian Industry (CII) works to create and sustain an environment conducive to the growth of industry in India, partnering industry and government alike through advisory and consultative processes. CII is a non-government, not-for-profit, industry led and industry managed organisation, playing a proactive role in India's development process. Founded over 113 years ago, it is India's premier business association, with a direct membership of over 7500 organisations from the private as well as public sectors, including SMEs and MNCs, and an indirect membership of over 83,000 companies from around 380 national and regional sectoral associations. CII catalyses change by working closely with government on policy issues, enhancing efficiency, competitiveness and expanding business opportunities for industry through a range of specialised services and global linkages. It also provides a platform for sectoral consensus building and networking. Major emphasis is laid on projecting a positive image of business, assisting industry to identify and execute corporate citizenship programmes. Partnerships with over 120 NGOs across the country carry forward our initiatives in integrated and inclusive development, which include health, education, livelihood, diversity management, skill development and water, to name a few. Complementing this vision, CII's theme "India@75: The Emerging Agenda", reflects its aspirational role to facilitate the acceleration in India's transformation into an economically vital, technologically innovative, socially and ethically vibrant global leader by year 2022. With 64 offices in India, 8 overseas in Australia, Austria, China, France, Japan, Singapore, UK, US and institutional partnerships with 271 counterpart organisations in 100 countries, CII serves as a reference point for Indian industry and the international business community. Confederation of Indian Industry 105, Kakad Chambers, 132, Dr. A. B. Road, Worli, Mumbai- 400018 Phone: 022-24931790, Fax: 022- 24939463, 24945831 Website: www.ciionline.org

Acknowledgement
This report was written with valuable inputs from Shalini Pillay, Avani Shah, Nidhi Goel, Pratixa Davawala, Shouvik Paul, Gaurav Mahant, Swati Shankar, Naren Gorthy, Ashish Singla, Kavya Shetty and Riddhi Kaul.

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CII Contact
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