Why is Health Insurance important?

Having health insurance is important for several reasons :

Rising medical costs

Sharing of health related risk
uncertain hospital bills
Expensive/quality health care services
Money value – Sick Vs Healthy
Family health insurance
Tax benefit
Productivity of workforce
Removes some of the burden from the state
Keeping pace with the customer needs while achieving
profitability
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 Progression of Health Insurance business in India

Policy Growth Rate

Health Insurance Policies Procured by lines of business
2007-08 2008-09

Standalone 282% 117%

12,000,000

Non-life 67% 23%

10,000,000
Life 110% 124%

8,000,000 Standalone Total 70% 29%

Non-life
6,000,000
Life

4,000,000

356419 798588
2,000,000 169703 332,541
40,078 153,097

0
% share of Health insurance policies sold
2006-07 2007-08 2008-09

2006-07 2007-08 2008-09

Standalo
ne 0.75% 1.67% 2.82%

Non-life 96.10% 94.43% 90.41%

Life 3.16% 3.90% 6.77%

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J ANITA & D CHAKRAVARTHI Total 100.00% 100.00% 100.00%
 Progression of Health Insurance business in India (cont….)

Premium Growth Rate

Health Insurance Premium Procured by lines of business
(In lakhs) 2007-08 2008-09

Standalone 1297% 243%

700,000.00
609,037
Non-life 55% 23%
600,000.00
496,901 Life 222% 278%

500,000.00 Total 61% 34%

Standalone

400,000.00 319,757 Non-life

Life
300,000.00
% share of health Premium

200,000.00 2006-07 2007-08 2008-09

53,509
100,000.00 1,116 2788 15,594 8968 33875 Standalone .34% 2.99% 7.68%

Non-life 98.79% 95.29% 87.45%

0.00
2006-07 2007-08 2008-09
Life .86% 1.72% 4.86%

Total 100% 100% 100%

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Journey of Life health insurance products since 2003…..

Subject Observations

Term 1 to 30 years
Premium From 1 year to 5 years
Guaranteed
Diseases From 5 to 100.
Covered Focus on rampant diseases
Death Benefit With introduction of Sec 80(D), most products do not
have death benefit
Coverage Only life assured to Dependent members

Type Non linked to linked

Max. Entry age 50 to 65 years

Max. Maturity 65 to 75 years

age
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Opportunities in Health Insurance……

Total Expenditure On Health As % Of Gross Dom estic Product

16.00% 15 .3 0 %

14.00%

12.00% 10 .0 0 %

10.00% 8 .7 0 %
8 .2 0 %

% 8.00%

6.00% 4 .6 0 %
3 .6 0 %
4.00%

2.00%

0.00%
A U S TR A LIA CANADA C HIN A IN D IA U N IT ED USA
KIN D O M
Source: 2009 WHO fact sheet based on 2006 data

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Opportunities in Health Insurance……

Health Expenditure Ratios

100.00%

80.00% 75.00%
70.40%
67.70% 68.55%

59.30%
57.30%
60.00% 54.20%

49.28%
45.80%
%
40.70%
40.00%
32.30%
29.60%
25.00%

18.22%
20.00% 14.50% 12.70% 12.90%
11.65%

0.00%
AUSTRALIA CANADA CHINA INDIA UNITED KINDOM USA

General government expenditure on health as % of total expenditure on health

Private expenditure on health as % of total expenditure on health
Private Out-of-pocket expenditure as % of expenditure on health

Source: 2009 WHO fact sheet based on 2006 data

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Opportunities in Health Insurance……

Private Pre paid Plans as % of Private Expe nditure On He alth

6 6 .4 0 %
70.00%

60.00%

50.00%
3 9 . 10 %

40.00%
%
30.00%

20.00%
8 .2 0 %
5 .5 0 %
10.00% 1. 9 0 %
0 .8 0 %

0.00%
A U S T R A L IA

CANADA

C H IN A

IN D IA

K IN D O M

USA
U N IT E D
Source: 2009 WHO fact sheet based on 2006 data

…. Given the health financing and demand scenario, health insurance has a wider
scope in present day situation in India. However, it requires careful and significant
efforts to tap Indian health insurance market .

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 Current Health Insurance Scenario: India

Health Insurance Penetration in India

Uninsure d
8 2 .6 5 %

Indian Railways
0 .5 9 % Pvt. se c tor
ESIS Community
Ente rprise (Se lf
Pvt.He alth 3 .1 9 % Insuranc e
Funde d)
Insuranc e 4 .1 9 %
4 .6 1 %
1 .4 2 % CGHS
3 .3 5 %

Low penetration of Insurance and Low Govt. expenditure in India . . .

Has resulted in high Out-of-Pocket spend

Source: Business World (India) – Oct 2007

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2006 Australia Canada US UK China India

Life 82 81 78 80 74 64.0 Healthy life expectancy of India

expectancy indicates that there is higher
(avg. # of need of health insurance from
years) age 60.

# of 2.5 1.9 2.6 2.3 1.4 0.6

Physicians
per 1,000
people

Healthy life 74 73 70 72 66 60
expectancy
(avg. # of
years)

Healthcare 8.7 10 15.3 8.2 4.6 3.6

spend (% of
GDP)

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Critical question is hence how to improve the access to health care
and financial protection of the poor . The most obvious solution will
be to improve the health insurance penetration

How to improve Health insurance penetration!!!?

Regulator/Government
Enhance customer awareness
Enhance client confidence - real value benefits in the event of a claim
Effective supervision
Compulsory percentage of total business towards health
Compulsory savings towards health
Tax incentives to employers for promoting group health coverage

Insurer
Clients confidence - warrantable claim will be paid out in a reasonable time frame
New clients have to be reached
Value for money
Design products as per clients needs
Product transparency
Cost efficiency
affordability
Wellness programmes

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 Recent initiatives of IRDA

 Committee to formulate regulations

 Pure health insurance products

 Allowing the formation of an stand alone health insurance company

 Standalone health insurance companies

 Renewability

 Senior citizens

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Challenges in Health Insurance
Medical advance, both a challenge & also impediment

Increase in health care cost

Ageing population

Acute shortage of trained personnel ranging from doctors to

health care administrators

New emergence and resurgence of old diseases

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Impediments to providing Health Insurance….

Lack of Data
Moral Hazard/Adverse Selection
Complex nature of the product
Medical Inflation
New treatments
Unnecessary treatments
Difficulty in pricing
Government provision of health care
Long term nature
Changing life style
Mis-selling/fraud……

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How to mitigate/address these impediments…

Insurer
Designing a less complex products
Transparency in the product features
Clarity in policy terms, conditions & exclusions
Efficient back-office support for underwriting and claims processing
Higher Reinsurance
Need for quicker services. Eg: Toll free no.s, cashless, quick
response
Expense analysis on a regular basis
Product innovation
Efficient training of sales force

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How to mitigate/address these impediments…

Policyholder
Pay attention to policy conditions
Read the exclusions and limitations very carefully
Compare premium costs, deductibles, co-payments
Take an informed decision

TPA
Proper infrastructure
Speedy claim settlement process
Less paper work

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How to mitigate/address these impediments…

Regulator/Government
Come out with health insurance regulations
Centralized data base for health insurance experience statistics
Provider rating
Cap on renewal premiums
Ensure that a decent portfolio of health coverage represent the
rural sector
Guard against ill effects of privatization
Further tax incentives
Compulsory savings towards health care
Should emphasize the need to employ actuarial
methods in various aspects of life and non-life
businesses

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Health insurance as compared to life insurance from an actuarial
perspective

 Insured event: Definition of the insured event

 Flexibility: Flexibility to the customer regarding the insured event

 Claim amounts: Often large and volatile increases in claim amounts due to
medical advances etc.,

 Claim frequency: Multiple claims in a year and large number of small claims

 Data: lack of credible and adequate data

 Effect of certain rating factors on cost of the claims

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How Actuarial Principles can mitigate the risks….

Health insurer has to cater for many risks inherent in the

portfolio:

» Pricing

» Underwriting

» Business

» Marketing

» Economic….

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Pricing an health product is very difficult and poses a great challenge for
obvious reasons.

While pricing, it is not just the price of the benefit ….

There are various factors that should go into pricing

Expected Business volumes
Target market
Realistic proportions
Robust pricing models
Deviations from assumed should be addressed
Simulation techniques
Synergy or Cannibalization
Correlation with other products
Experience Analysis
Analyzing in-house experience
Credibility approach
Goodness of fit test to check the distribution of claims
Analysis by professional

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Reinsurance arrangements
Effect on claims size as well as premium flow

Solvency and regulatory requirements

Analyzing the effects of various solvency guidelines
Analyzing Tax regimes
Effect on overall profitability
Capital requirement

Investment incomes
Though non-life is short term, IBNR reserves for health are long
tailed. Hence, time value of money is important for both life and
non-life business.
Investment structure is an important criterion in choosing the best
price for a product

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Management outlook

Risk appetite of the company needs to be considered in pricing

This aspect needs to be quantified in reinsurance arrangement,
investment profile and capital structure of the company

Reserving

Is reserving purely a mathematical exercise?

An Actuary needs to understand the behaviour of claims and

constantly devise tools/methods for claims reserving purpose

Employing a professional with required knowledge and experience

is a must

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In a nut shell, various statistical tools that are essential for
performing the above functions and many more are…
Decision theory

Loss Distributions

Ruin Theory

Credibility and Bayesian Statistics

Markov Chains

Generalized Linear Models

Time-series analysis

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In the light of the above, the recent initiative by the Regulator to focus
more on risk based pricing which involves the availability of the strong
data base and also various analysis regarding pricing, to measure the
underwriting impact, testing the profitability of products etc. ,
emphasizes the need to employ actuarial methods in various
aspects of life and non-life businesses.

In addition, one should bear in mind that the an insurance

product is not bought but sold in many cases. One major
reason that can be attributed to this is the lack of customer
awareness (other reasons could be complex nature of the
product, presence of many players in the market, customer’s
ignorance etc.,)

Therefore, it is very important to enhance the customer

awareness, which is currently at a low level. To achieve this
means, the Government, Insurer and the Regulator has to play
a very important role as discussed above.

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