The role of TPAs in the Health Insurance Eco System

This interview was first published in IIB Bulletin, Vol. 2, Iss. 4, 2016, pp.11-12

https://iib.gov.in/IIB/Articles/IIB%20Bulletin%20IIRFA2016.pdf

Malti Jaswal, has close to 30 years of experience in the General Insurance industry in India in different capacities; marketing, operations, claims management etc. She has worked with both public sector and multinational insurers. Since 2008, she is working in health insurance field and is an active member of multi‐stakeholder working groups on health insurance in India. She is a regular speaker at health insurance forums and she has published papers relating to Universal Health Care, Third Party Administrators (TPAs) best practices, claims management, and fraud control.  

 

She has also been a member of sub-committees of Ministry of Health on Categorisation of Hospitals and Costing of Care. As a Consultant, she worked on varied projects relating to health insurance training and education, Information Technology (IT), payer-provider exchange platforms, cost control, and fraud control.

 

She has developed a Certification Course on Health insurance for Insurance Institute of India. She is currently working as the Chief Operating Officer of the Health Insurance TPA of India Ltd (HI TPA), a joint venture of the four public sector general insurance companies in India, namely, National Insurance Company Ltd., New India Assurance Company Ltd., Oriental Insurance Company Ltd. and United India Insurance Company Ltd, along with GIC of India.

 

In a conversation with Dr. Nupur Pavan Bang of the Indian School of Business, Hyderabad, Jaswal talks about the need for HITPA, the important role played by TPAs and fraud in Health Insurance claims.

You have worked extensively in the field of Health Insurance. Can you tell us about the role of TPAs in the Health Insurance Industry in India?

The concept of TPAs came to India around the years 2001-2002. That was the time the Insurance sector was opened up to the private players. The private players, when they started, didn't have in- house capability of running 24*7 claims support functions and wished to focus on core areas to build business. Public sector companies also did not have such capabilities though Mediclaim (generic term for health insurance product of PSUs) is being sold since 1986. Thus outsourcing seemed a natural choice. This gave birth to the concept of TPA in India. The TPAs were licensed by the Insurance Regulatory and Development Authority of India (IRDAI) to ensure that certain minimum requirements were met to set up a TPA. 

There are 30 licensed TPAs in India. So what is the purpose of setting up another TPA- Health Insurance TPA of India (HI TPA), promoted by four public sector general insurance companies?

The growth of business in health insurance has been exponential in India in the last decade with a year-on-year growth of 25%-30%.  To handle the growing business, robust processes, latest systems and technology and trained people are needed. However, the required investment did not happen across the spectrum of TPAs and the TPA industry remains under capitalized even today.   

Most of the large private sector insurance companies, including standalone health insurers, gradually started setting up in-house TPA/claims management facilities to have better control and do not use TPAs in big way anymore. Public sector insurance companies however continue to use the TPAs because of certain peculiarities of 24*7 operations. The terms and conditions of employment contracts of public sector general insurance companies are not generally geared for engaging manpower for round the clock services nor is rest of infrastructure.  In my view perhaps, it is also realized that the demanding nature of 24*7 TPA services required by customers, could be delivered more efficiently and effectively through a non-public sector entity.

Thus it seems to be a considered decision for the four public sector companies to come together, pool capital and create such an entity. This way, adequate capital investment could be made in HI TPA from an IT perspective because robust IT infrastructure and trained manpower are the key requirements for the TPAs to handle complexities of current health insurance products and high volumes. The four companies already enjoy the benefit of scale when bargaining with the hospitals together under Preferred Provider Network (PPN) arrangements.

Would HITPA also provide services to private insurance companies? And would the PSU companies use only HI TPA’s services in the future?

As of now the TPA license given by IRDAI to HI TPA is only for the four public sector companies. We have represented to IRDAI to make the license open to service business of private insurers.

There is absolutely no doubt that PSU companies will continue to use multiple TPAs. There is no intention of moving business completely to HI TPA as voluminous business is being serviced by various TPAs and retaining competition in essential to ensure that all parties deliver value to the customer.  At the same time if there is an entity with adequate capital, trained and skilled resources, robust processes and IT infrastructure, which can in a way, set the benchmarks for the entire TPA industry in India; it will surely bring better practices and impact the market in a positive way.  HI TPA aims to be that entity.  

You mentioned that the concept of TPAs came to India around 2001-2002. Prior to that, the public sector companies were managing the claims in-house. Since many of the private companies are now setting up in-house TPAs and claims processing teams, why can’t even the public sector companies continue the earlier practise of settling the claims in-house?

Claims management is an integral part of any insurance operation world over.  Since inception public sector insurance companies have had high quality technical manpower to do so for all lines of their business. The companies were also managing health insurance claims in-house prior to 2002.

In 1986, retail Mediclaim was launched for the first time in India by the public sector companies. The practice from 1986 to 2000 was that the customer would pay the hospital from her pocket and get the expenses reimbursed later from the insurance company which could take many days/weeks. With the entry of private sector companies in joint venture with large and experienced international insurers, cashless facility was introduced, as one of most customer friendly service.

For cashless facility to work, TPAs were inducted to organize and facilitate the same 24*7*365. TPAs facilitate networking with the hospitals on one hand and cashless/claims processing for the customers on the other.   

So the TPAs only process cashless claims?

A claim is a claim whether on cashless basis or on reimbursement basis.  Cashless is a customer friendly process wherein customer need not pay for treatment and then file claim later.  However customer has every right to seek treatment in any non-network hospital (so long as it meets the criteria) and file for reimbursement claim.  A claim is admissible and payable depending on terms and conditions of the policy, on what risks are covered, to what extent etc. The TPAs process both types of claims, however traditionally (and even today), role of TPA is primarily considered to facilitate cashless and all other services around the same e.g. 24*7 call center, issuance of member id cards, hospital network etc.   

Does the TPA pay the claims?

As per IRDAI guidelines, claims are required to be paid and repudiated by insurers directly to customer/provider.  TPA’s role is to process the claims as per guidelines of the specific insurance company and subject to terms and conditions of the policy.   The TPAs do not carry the risk, nor are involved in selling or underwriting. 

Some accounts put Health Insurance frauds to the tune of 15% of all health insurance claims in India. That is huge and puts a lot of burden on the customers in the form of increased policy premiums. Would HI TPA be instrumental, to some extent, in controlling fraud in health insurance?

As the health insurance industry has grown in India, so has the number of fraud cases and also modus operandi of fraudsters is getting sophisticated.  High growth tends to loosen controls and here in India we do not have Health Regulator. HI TPA aims to fulfil the twin objectives of its creation - enhancing customer experience and bringing in greater efficiency in Health Insurance claims processing.  Efficiency in claims processing would also incorporate better handle on controlling and managing fraud.

Can you elaborate on the ways in which fraud may be controlled?

The main job of TPA is claims processing and managing the hospitals network. TPAs handle the claims process right from the point of intimation to the settlement of the claim. TPAs have good IT systems. Policy data is integrated with their systems. Policyholder and members’ (people covered in the policy in the case of family and group policies) profiles are available with the TPAs as also the details about network hospital. All this information, coupled with the knowledge about medical practices and hospital tariff should make it easy to detect any outlier behaviour or pattern.

For example, let’s say a customer reports a non-emergency claim 1000 kilometres away from home.  It should ring a bell. If it's a non-emergency claim, why would a patient go to a hospital which is so far away from home unless it’s a specialty treatment like cancer.  Another example, if there is a very large reimbursement claim of say Rs400,000 or more, it should raise an alert. Why a customer would chose to pay such a large sum out-of-pocket and not avail the cashless facility made available in so many good tertiary care hospitals in normal circumstances.

During the entire chain of events, from intimation to payment, there are at least 5 or 6 trigger points, which a smart system and skilled manpower should be able to detect. Next step is data analytics in retrospect. Sometimes small value claims can slip through. But if analysed appropriately, those leakages would also become apparent over a period of time and amenable to control.

In India, there is no proper definition of what is a financial/insurance fraud. In the absence of a clear definition, even if a fraud is detected, the companies may choose to not pursue it if the amount is small. Even when a company decides to take legal recourse, the battle is often very long drawn and not worth the effort. As an industry, are there any steps being taken to tackle this lacunae?

It's indeed a big lacunae – there is no definition of insurance fraud under Indian laws nor provisos to deal with the same. There are three angles to fraud management; one is detection, second is recovery, and third is prevention/deterrence and punitive action.  Right now the insurance industry in India is primarily focused on detection and to some extent on recovery.  Not losing the money is the first and foremost priority. Unfortunately, prevention through punitive deterrent action is missing because our legal system and penal codes have not yet caught up with the changes in the financial and insurance domain. The Insurance Act of 1938, in spite of the recent amendments to it, doesn’t carry any active provisions to handle fraud. Punitive action is necessary for effective deterrence.

There have been industry level discussions at the Federation of Indian Chamber of Commerce and Industries and the Confederation of Indian Industries about what can be done to tackle fraud in the absence of legal provisions and health regulator. There have been suggestions to involve the Indian Medical Council to prevent doctors from conniving with the customers and hospitals to exaggerate claims or be a party to the fraud in any way. A few companies have started issuing letters to hospitals and doctors to seek explanation when a certain course of treatment seems unreasonable.   ‘Name & shame’ guidelines have been discussed.  

IRDAI has taken cognizance of growing menace and ways to control the same. IIB is also now directing lot of action to health data collection and analysis, hospital registry has been set up for the first time. Though a small step, data sharing of fraudulent customers and fraudulent hospitals has now started. Hopefully in times to come, we shall see more action on this front.  

Top 5 Diseases Analysis

This article was first published in the IIB Bulletin, Vol 2, Issue 2, pp9-10; Co-Author- Syed Md. Ismail

https://iib.gov.in/IIB/Articles/IIB%20Bulletin%20Q2%202015-16.pdf

Many studies have indicated that Indians are now more vulnerable to non-communicable diseases than communicable diseases due to changing lifestyles and income levels. Cardiovascular diseases have displaced communicable diseases as the biggest killer in India and, according to a 2010 University of Toronto study, the leading cause of death in middle aged men is heart disease, even in poorer states such as Uttar Pradesh and Bihar.

A sub-set of the claims data for the Financial Year 2013-14 available with IIB was used. The selected data comprised of claims where the diagnosis code (ICD10) and the pincode of the hospital was provided. The selected claims consisted of both Group as well as Individual policies. The effects of Sum Insured or gender or age are not considered in this analysis. The claims selected amounted to Rs.3,355 crores of claims paid for 11,22,652 claims.

The analysis shows that circulatory diseases have the highest average claims paid among all disease categories, accounting for 13% of claims paid analyzed (Exhibit 1).

According to a report published by the Indian Association of Prevention and Social Medicine, “Decline in morbidity and mortality from communicable diseases have been accompanied by a gradual shift to, and accelerated rise in the prevalence of, chronic non-communicable diseases (NCDs) such as cardiovascular disease (CVD), diabetes, chronic obstructive pulmonary disease (COPD), cancers, mental health disorders and injuries”. The top 5 disease categories (out of 22 broad disease categories as per ICD 10) which account for 51% of claims paid, in the sample under study are, apart from circulatory disease, Injury (10%), Digestive (10%), Urology (9%) and Neoplasm (8.5%) (Exhibit 1).

The same report states that “though there have been substantial achievements in controlling communicable diseases, still they contribute significantly to disease burden of the country”. The amount of claims paid is relatively smaller for Infectious diseases, but they account for largest number of claims as per our analysis (Exhibit 1).

It was also noticed in our analysis that Mumbai accounts for the largest number of health claims, accounting for 27% of the 11,22,652 claims studied, amounting to 30% of the claims paid. The other large cities which account for significant number of claims paid are Delhi (19%), Kolkata (14%), Bengaluru (12%), Chennai (11%) and Hyderabad (10%), with others accounting for the remaining 5% only (Exhibit 2).

Exhibit 1

Exhibit 2

The case for Mental Health Insurance

This article was first published in the IIB Bulletin, Vol 2, Issue 2, pp17-18

https://iib.gov.in/IIB/Articles/IIB%20Bulletin%20Q2%202015-16.pdf

As per the World Health Organization (WHO), Mental health refers to a broad array of activities directly or indirectly related to the mental well-being components included in the WHO's definition of health: "A state of complete physical, mental and social well-being, and not merely the absence of disease". It is related to the promotion of well-being, the prevention of mental disorders, and the treatment and rehabilitation of people affected by mental disorders.

Common forms of mental illnesses include Depression, Anxiety/ Phobias, Eating Disorder and Stress, among others. Some of the severe forms of Mental Illness are Schizophrenia, Bipolar disorder (Manic depression), Clinical depression, Suicidal tendency, and Personality disorder.

According to National Institute of Mental Health and National Alliance on Mental Illnesses, in the US, 1 in every 4 persons suffers from some form of Mental Illness or the other, while this statistic is 1 in 6 persons in India. The impact is that people with mental illness die 25 years earlier than other Americans and more than 90 percent of suicide cases are found to have one or more mental disorders.

In a study done by BeyondCore, Inc. on people insured between the ages of 18-35, in the USA, it was found that Mental Illness has a compounding effect on claims (cost of treatment). For example, the annual cost for young adults with heart failure was $42,000, for people taking antidepressants was $7,700, but people who had both heart failure and were taking antidepressants had an annual cost of $70,000 (see Figure 1). 

Figure 1: Compounding effect of Mental Illness

To the economy, the loss of earnings due to mental illness amounts to US$193 billion per annum. Globally, depression alone affects 400 million persons and was estimated to cost at least US$800 billion in 2010 in lost economic output, by WHO, a sum expected to more than double by 2030. While such statistics are not available for India, it will be reasonable to assume that the impact would be significant.

In fact, the situation in India may be worse as acknowledging suffering from some form of Mental Illness is culturally a taboo in India. On top of that, the availability of help in terms of psychiatrists, psychiatric beds, clinical psychologists, etc. is much below the required numbers. For example, there are approximately 3000 psychiatrists in India vis-à-vis a requirement of 150000.  

Health Insurance policies also exclude Mental Illness specifically. Extracts from the policy documents of a few health insurance products read as follows:

• “the following fall under permanent exclusions: Any expense incurred on treatment of mental Illness, stress, psychiatric or psychological disorders”
•  “this policy excludes: Psychiatric, mental disorders (including mental health treatments)”

Insurance plays a key role in Healthcare financing. Insurance is based on law of large numbers and there is no denying the large number of people suffering from mental illness. The trouble of course is that Insurance contracts are based on utmost faith and the policyholder must disclose complete known information about his physical and mental health at the time of buying the policy. The fear of inadequate disclosure by the customer may deter the Insurers from offering policies on Mental Health insurance.

Assessing the risks may remain a challenge for the underwriters till adequate data becomes available. Collating the data from various institutions like National Institute of Mental Health and Neurosciences and the Institute of Mental Health and Hospital, Agra may help the Insurance companies design appropriate products.

Use of innovative techniques may come in handy to some extent. For example, social media analytics of an individual may reveal suicidal tendencies or enquiries about specific problems like depression, anxiety, etc. Sentiment analysis can help find people at risk. These can then be verified with the customer and specific undertaking may be taken from the customer if he does not agree with the findings.

Mental illness is also a major cause for the high number of suicides in India. Intervention at the right time, access to healthcare, along with health financing will play a major role in talking the problem of suicides related to mental illness as well as prevention of the illness getting aggravated. It is a serious issue and the Insurers can play a major role to make a difference!

Unconventional Products on the Block

This article was first published in the IIB Bulletin, Vol 2, Issue 2, pp4-6

https://iib.gov.in/IIB/Articles/IIB%20Bulletin%20Q2%202015-16.pdf

Mr. Sushant Sarin is the Senior Vice President- Commercial Lines, at Tata AIG General Insurance Co. Ltd. In this capacity, he is responsible for profitably growing the Commercial Lines business of Tata AIG, leading its major and corporate accounts practices and overseeing its broking and commercial agency distribution.

Under Sarin’s stewardship Tata AIG has been the leading Liabilities insurer for India Inc. Sarin helped set up Tata AIG’s operations and as part of the start-up team one of his assignments was to help bring to India Inc. the latest liability insurance products used by industry world over.

A practicing Fellow of the Insurance Institute of India, Sarin has close to 25 years of experience in the General Insurance Industry. Prior to Tata AIG, he worked in various capacities with United India Insurance Co.

Sarin is a graduate in Science from St. John’s College and holds a Post Graduate Diploma in Management & Marketing. His interests include long distance running, reading and dramatics. He is currently reading “Miles to Run Before I Sleep” by Sumedha Mahajan (Rupa Publictions, 2015).

In a conversation with Dr. Nupur Pavan Bang of the Insurance Information Bureau of India, Sarin talks about the Unconventional Insurance products which have gained significance in recent years due to the Social, Regulatory, Technological and Environmental changes taking place globally and in India, the challenges posed to the Insurers while selling such products and while assessing losses.

An ASSOCHAM-Mahindra SSG study earlier this year warned that the number of Cyber crime cases in India could rise to more than 3,00,000 cases in 2015, growing at a compounded annual growth rate (CAGR) of about 107 per cent. In such a scenario, Cyber Liability Insurance must gain importance. Is the growth in volume (in terms of Gross Written Premiums) of Cyber Liability Insurance products for the Insurance Industry, keeping pace with the increased number of crimes?

Cyber Liability Insurance is becoming very important nowadays, especially in the backdrop of rising number of instances of cyber crime and cyber data breaches. Its growth in terms of both premium as well as the number of policies being purchased has been remarkable.

At Tata AIG, we launched this product about two years back and the portfolio has grown to $2 million now. We see that more and more companies are buying Cyber Liability Insurance. Those companies which were the first movers are buying more cover and those who have not bought it yet, will start buying it.

However, when a client is looking to buy a Cyber Liability Insurance, he is buying something quite advanced and sophisticated. Tata AIG has the customers’ confidence in this product and the market share is tilted in its favour.

As you mentioned, Cyber Liability Insurance is quite advanced and sophisticated. How does a customer know what is the amount of Insurance or “Limit of Liability” that they would like to avail of?

Cyber Liability and Cyber Crime are often, though inaccurately, used as synonyms. Cyber crime refers to any crime committed using computers or over computer networks. When we think of cyber crime, we unwittingly limit our thinking to only those crimes committed using computers or over computer networks, that are related to theft and robbery of money or securities. 

However, confidential data or personally sensitive information such as that related to customers’ passwords for financial transactions, bank account numbers, confidential medical records, etc. are also very valuable and theft of such data or information can have dire consequences for a company or an individual.

For example, for a Bank, if someone accesses data of a Bank’s customers in an unauthorized manner, he can get into the account of any bank customer and do whatever he wants to do with the money lying in the account.

So information or data is very valuable. That’s why insurance for financial consequences of data breach, that is, Cyber Liability Insurance, becomes important.

Coming to how do companies know what should be the Limit of Liability for which they should buy insurance, this depends upon factors like the type and volume of data, origin of data, location where the data resides, sensitivity of the data, data security protocols, peer group benchmarking, etc.

So if the data originates from Europe or the US, the data privacy laws are stricter there, so more Insurance will be required. Similarly, if the data is personally sensitive or creates financial vulnerabilities, the amount of Insurance required will be much more.

How does the Insurance Company assess the loss if a data breach does happen? What are the kinds of losses that are covered by such a policy?

When money is stolen, like in the case of a recent event where a Bank discovered a fraud to the tune of a few Crores of Rupees due to fabricated credit cards, the amount of loss suffered is a straight forward calculation and this amount will be paid by an Insurance Company if the Bank has a policy covering such fraud.

However, a data breach is more complex. Cyber crime which results in a data breach may typically get discovered much later than a cyber crime where a specific amount of money is stolen. When it does get discovered, the following issues confront the company and lead to costs, expenses, fines, penalties and liability being incurred by the company:

• How did the data go out? Forensic investigation would need to be done and it is very expensive

• Cost of  notifying the customers, that is, data subjects, about the breach; notification costs form a very large part of the financial costs following a data breach

• Regulatory bodies may impose a fine or penalty; the policy pays for these if these are insurable under law

• Customers or data subjects may sue the company. Courts may awards damages to be paid to each of the affected customers

• Reputation loss- a public relations expert may need to be hired to salvage the reputation of the Company and / or its Data Security Officer

The policy covers these and other financial consequences.  The total of these losses is the amount payable under the policy.

The year 2015 saw bans on popular food products in India. For a company, when operating in a country like India, where the regulations at times may border on being in grey, rather than black or white, Product Liability Insurance becomes important. What are the main features of such a policy?

A lot of awareness has been created in recent times about product safety and quality and of Contaminated Product Insurance as a related risk mitigation measure. Product recall is very generic Insurance Policy. A product can be recalled for any number of reasons. It could be defective or dangerous or any other reason. Contaminated product insurance is a policy specifically created for products which are for consumption by people as consumption by human beings poses a high degree of risk if the product is unsafe or harmful. The policy covers the cost of recall, cost of additional warehousing, extra manpower, disposing of extra packaging and point of sale material, cost of engaging with a Public Relations agency to undo the damage to reputation and brand to re-establish market share, loss of profits because of business interruption following the incidence of contamination, malicious product tampering and product extortion etc.

What if the policyholder (Company) doesn't disclose that a certain product is contaminated? Will the Insurance Company still be liable to pay the claims?

Insurance policies are for fortuitous /accidental events even if caused due to negligence. Intentional or known defects are not covered.

Directors’ and Officers’ (D & O) Liability Insurance is another product which should have picked up in 2015. With cases of harassment in work places on the rise and complaints on high profile executives grabbing the media attention, are more and more companies opting for D & O Liability Insurance?

D & O Liability Insurance is no more an option. Everyone is buying it. No company is secure till they buy a cover protecting management against personal liability for managerial actions.

Is loss of a company’s CEO covered under an insurance policy?

For this, we must consider two different types of insurance products that deal with two very different types of exigencies.

One type of policy which is popular is Key Man Insurance. Such policies are sold by Life Insurance companies and are generally taken by a company on the life of key employees to cover the company from the sudden loss of a ‘Key Man’ that results in financial loss to the company.

As far as a D & O policy goes, it would protect the directors and officers of a Company if the company were to lose a dynamic successful CEO to say, competition. The profitability of the company and hence the share prices could take a beating. The shareholders may sue the Board of the company for not doing enough to retain the CEO and may demand compensation for their losses. D & O Liability Insurance would come into play here.

How does the Insurer price D & O Liability Insurance? What are the factors that are accounted for when underwriting and pricing the product?

It is the collective outcome of many factors like the performance track record of a company, its asset size, whether the company is listed or not, if listed whether the listing is in India or abroad, say US or UK, compliance record, disclosure standards, the nature of business, the nationality and profile of employees, etc.

Insurance is mainly meant to mitigate the losses that a company/individual may face if certain events happen. If we go by this definition of Insurance, then many Multinational companies operating in India may want to buy a cover for Tax related risks. Is there a product in the market which covers Tax risks?

Talking of tax levies in general, tax is levied by law. If tax that is to be levied is not deducted, collected or paid, whenever it is detected, it will have to be paid. There is no fortuitousness about it. However, when there is a transaction like a merger or an acquisition happening, the tax position under law may not be clear. If the law is not clear, for such very limited situations, Tax Indemnity Insurance is available. It is by its nature a customized policy. Very few insurers have the capability to write such policies.

What is the recourse for companies which are faced with retrospective taxes being levied on them? Tax risk is certainly not something that any of these companies would like to carry themselves.

Other than insurance for the limited situations where the tax position in a transaction may not be very clear, there are no blanket or omnibus tax insurance policies. Retrospective changes in laws will not be covered by Insurance.

Ace investor Mr. Rakesh Jhunjhunwala, in an interview to CNBC TV-18, earlier this year, expressed his concerns about the valuation of e-commerce companies in India. In the recent past, there have been more voices expressing concerns about the high valuations of the e-commerce start-ups and it is being likened to the Dot Com Bubble of 2000. If there indeed is a bubble, and it bursts, the Venture Capitalists (VCs) and Angel Investors (AIs) would be the ones to lose maximum money. In such a scenario, do see a need/demand for a product to cover the risks being faced by VCs and AIs?

VCs and the AIs do a lot of due diligence before they invest. Arriving at a reasonable valuation is part of their business and they must take that risk. But if the due diligence is not done appropriately, and limited partners lose money because of the negligence of general partners, professional indemnity insurance coverage under the VC Protector policy will be useful.

Fifteen Years of Liberalization in the Insurance Sector

This article was first published in the IIB Bulletin, Vol 2, Issue 1, pp10-11: Co-Author: Syed Md. Ismail

https://iib.gov.in/IIB/Articles/IIB%20Bulletin%20Volume%202%20%20Issue%201%20Final.pdf

Source: Swiss Re, Sigma various volumes and IRDA Handbook

* Insurance penetration is measured as ratio of premium (in US Dollars) to GDP (in US Dollars)

# data relates to financial year

The data labels refer to the Insurance Penetration for India

Source: Swiss Re, Sigma various volumes and IRDA Handbook

* Insurance penetration is measured as ratio of premium (in US Dollars) to GDP (in US Dollars)

# data relates to financial year

The data labels refer to the Insurance Penetration for India

Source: Swiss Re, Sigma various volumes and IRDA Handbook

# data relates to financial year

The data labels refer to the Insurance Density for India

 Source: Swiss Re, Sigma various volumes and IRDA Handbook

# data relates to financial year

The data labels refer to the Insurance Density for India

Wrong No Claim Bonus needs to be checked

This article was first published in the IIB Bulletin, Vol 2, Issue 1, pp6-7

https://iib.gov.in/IIB/Articles/IIB%20Bulletin%20Volume%202%20%20Issue%201%20Final.pdf

43% of the estimated approximately Rs5000 crores fraud in the General Insurance Industry in India, as per the India Forensic center research 2011, is accounted for by the Motor Insurance Business. Staged thefts, Overstating damages/claims, multiple claims for the same damage through multiple Insurance companies and the misuse of No Claim Bonus (NCB) are just a few examples of fraud in Motor Insurance.

If a policyholder does not make a claim during the previous policy year, a discount on the premium is given to reward the policyholder while renewing the policy. However, if a claim is made, the discount is not given. In such a scenario, the policyholder may go to another Insurance company and take a policy on the vehicle, without disclosing the previous claims.

In a Simulation exercise done using hypothetical data, done by the Insurance Premium Rating Bureau, Thailand, it was found that giving higher NCB can have a serious impact on the loss ratio of the companies. For example, in figure 1 below, 155,876 vehicles came up for renewal in Underwriting Year 2010. Out of these, 71,907 vehicles should not have got a NCB. However, only 19,514 were not given NCB. Rest of the 52,393 vehicles got NCB in the range of 20% to 50%.

Figure 1: Simulation of NCB 1^st Year Renewal

 

Figure 2: Simulation of NCB 4^th Year Renewal

These charts were first presented at the Insurance Information and Ratemaking Forum of Asia, 2015 in Kuala Lumpur, Malaysia on May 28, 2015 by Chutatong Charumilind and Konthorn Chainiwattana, Insurance Premium Rating Bureau, Thailand. Reprinted with permission.

Similarly, when these vehicles came up for renewals in subsequent underwriting years, some vehicles were always awarded NCB that they did not deserve. The resulting Loss Ratio for such vehicles, which were consistently awarded wrong NCB, was a whopping 164% to the Insurer.

Plugging in NCB leakage is hence extremely important for the Insurers.

Vehicle Claims History Search is a service provided by IIB to Insurers, which is aimed at removing the information asymmetry between the Insurer and the policyholder with respect to the previous claims. The use of this service would ensure that vehicles which have had claims in the past are not rewarded with No claims bonus. The Vehicle Claims History Search facility also brings in efficiency as the Insurers do not have to depend on the previous Insurers for verification of claims, it is a low cost option which can also be integrated to the policy management system of the Insurers through the web service provided by IIB.

Need of the Hour for the Life Insurance Industry in India

This article was first published in the IIB Bulletin, Vol 2, Issue 1, pp4-5

https://iib.gov.in/IIB/Articles/IIB%20Bulletin%20Volume%202%20%20Issue%201%20Final.pdf

Mr. Ian J. Watts is the Senior Vice President and Managing Director, International Operations for LL Global, Inc[1]. As head of LIMRA and LOMA’s International Operations, Watts is responsible for developing and expanding business opportunities in Asia, Latin America, the Caribbean, Europe, Africa and the Middle East.

Prior to joining LIMRA and LOMA, Watts was Global COO at ACE Life International, where he was responsible for day-to-day operations and new business development. He has held CEO positions in India and China for AIG and AIA and has extensive global experience in the UK, EMEA and Latin America. Watts was educated at Loughborough University College, earning a Business Education Council Diploma.

In a conversation with Dr. Nupur Pavan Bang of the Insurance Information Bureau of India, Watts talks about research in the Life Insurance sector, in India and globally.

In what way can the Life Insurance companies in India benefit from being associated with LIMRA and LOMA?

We can bring to the Indian Insurance market the global best practices and also world class education and development programs. Insurance companies in India still have a lot to achieve in terms of improvements in distribution productivity and profitability. We can bring quality experiences and proven systems from around the globe and help the situation here.

LIMRA does not do much research on the Indian market.

Yes. The historical research is primarily US based. In the US, there is decades of experience on trends. We can even track generation wise exposure and experience. Many US research studies now include global data. But now, strategically we will do more of international research, including surveys and studies in India.

What would be the focus of your research in India?

The focus in India is on Consumer trends and preferences with regards to purchasing Insurance.  As we work more closely with the Insurance Companies in India we will be well placed to conduct research that helps the industry continue to grow and develop. India has a large rural population and selling to this sector is a challenge but also opportunity for the Industry in India. Understanding the India Consumer purchase preference will be a focus of further research.

Distribution Channel plays an important role in determining the purchase behaviour for Insurance. What is the preferred distribution channel for Indians?

We found that while many Indians (same as the Chinese) might go to Facebook, Twitter, and other social media sites to do research on which Insurance product to buy, they still prefer “face to face” purchase of Life Insurance. This is because the products are perceived as complicated and need explaining by the Advisor.

What are the challenges with Distribution Channels globally?

Agents are still the most preferred distribution channel even in the US and Japan which are amongst the most matured Insurance markets. And you know that it is the most preferred channel in India. However, the challenge is that most of the Agents are now in the age group of 55-65 years. There are fewer agents joining the agency force every year but Consumers still prefer to purchase Insurance from an Agent. The older Agents may not know how to communicate effectively to Gen X & Y Consumers. Companies are focussing on how to attract and retain Gen X & Y Agents.

You have been both in India as well as China with AIG and AIA. What has been the experience? How do the two countries differ with respect to the Life Insurance market?

There are many differences and similarities between both important and large markets of India and China. A large population with a growing middle class, good economic growth and lower Insurance penetration rates are some of the similarities highlighting the opportunities for both markets. In India companies require only one licence to operate across the country whereas in China each Province requires a new license. Agency productivity is generally better in China as the companies there have been adopting global best practices for many years. Consumers in China are more comfortable purchasing Insurance via the internet than any other Asian market including India.

What are the global best practices that India must adopt?

LIMRA and LOMA can bring many proven global best practices to help the Indian Insurance companies improve their productivity and therefore profitability.

Scientific selection of Agents and sales staff helps companies identify those candidates most likely to succeed in an Insurance sales role. This then allows companies to invest in their best talent.

Effective and regular training and development of producers and employees improves their productivity and increases retention rates.

Compensation is a major driver of behaviour so aligning compensation to required behaviours is an effective best practice.

It is important to establish a management process and recognition framework within distribution channels and the organisation as a whole so lower performance is corrected early and higher performance is recognised effectively.

Technology plays an important role for Insurance organisations to reduce operating costs and connect closer with Consumers and customers.

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[1] LIMRA, a worldwide research, consulting and professional development organization, is the trusted source of industry knowledge; helping more than 850 insurance and financial services companies in 73 countries increase their marketing and distribution effectiveness. Together, LIMRA and LOMA provide the most comprehensive competency-based training solutions in the industry.

Health Insurance Hospital Registry

This article was first published in the IIB Bulletin, Vol 1, Issue 4: Co-Author: Varsha, GS1 India
https://iib.gov.in/IIB/Articles/IIB%20Bulletin%20Q4%202014-15.pdf

Poor data impacts many areas in the healthcare system. One of the areas that has an impact on Healthcare Analytics is the way hospitals are identified and stored in the various databases. In the case of the Insurance Industry, each Insurer has their own naming convention for Hospitals. For example, Table 1 shows that five different Insurers can name the same hospital in 5 different ways in their databases.

Table 1

Database A	Database B	Database C	Database D	Database E
ABC Hospital	The ABC Hospital & Emergency Services	ABC Hospitals Pvt. Ltd	ABC Hospital Group	ABC Group of Hospitals

In the above illustration one cannot be certain if all the names are referring to the same entity or if they are all different entities, without painstaking manual intervention. Using the list as it is would not give a clear picture of the number of claims, average claims, top diseases in a period in a particular Hospital, total insurance claims paid per Insurer to the hospital, and many more such statistics.

To overcome this issue it is recommended to identify each entity (hospital) with a standard and unique number. Think of it as a mailing address: an identifier for a single location in the world that is globally unique to that location. No other organization, agency, or affiliate can use it to identify their locations, but all parties can and should use it to identify that location.

The Standard adopted globally to identify a location using a unique and unambiguous number is a GS1 Global Location Numbers (GLNs) based on the GS1 System of Standards. Utilizing a GLN can help improve data integrity. In turn, it will help reduce cost and time spent on data cleaning and making it more reliable.

Such a system enables global and unique identification of products and locations, as well as the continuous, automatic update (i.e., synchronizing) of standardized information across all stakeholders. Unique identification provide the necessary foundation for achieving the best results when using complementary applications like automatic data capture, e-commerce, electronic record management, etc.

Insurance Information Bureau of India has undertaken a project to identify each Hospital in the Health Insurance Providers Network. GS1 India would allocate a GLN to each hospital, which is a unique, 13-digit number for a specific location. Implementing GLNs simplifies the exchange of information and provides the opportunity to manage accurate and authenticated data more effectively.

The GLN, or the globally unique ID would not only identify a specific location, but also provide the link to the information pertaining to it (i.e., a database holding the GLN attributes such as postal address and GPS co-ordinates of the location, services offered at that location, key contact person at that location etc.). This is a key advantage of using a globally unique identifier because all information can be held and maintained centrally in a database or registry reducing the effort required to maintain and communicate information between multiple parties on a national or global basis.

This enables various stakeholders to simply reference a GLN in communications, as opposed to manually entering all of the necessary party/location information. Using a GLN to reference party/location information promotes efficiency, precision and accuracy in communicating and sharing location information.

Figure 1

Several countries like UK, Australia, Austria, North America etc. use GLN’s in their procurement processes to enable efficiency and transparency to deliver better patient care.

The use of GLNs provides a method of identifying locations that are:

·         Unique: with a simple structure, facilitating processing and transmission of data;

·         Multi sectoral: the non-significant characteristic of the GLN allows any location to be identified - regardless of its activity

·         International: location numbers are unique worldwide.

By identifying hospitals with GLNs enables interoperability with other GS1 Healthcare Registries in the world, building global visibility of Indian healthcare facilities, services and capabilities for international patients

However, the most immediate impact of the Unique Identification would be on the quality of Analytics. Only when hospitals are properly identified, logged and data generated on health aspects from them are reliable, can any meaningful analysis be carried out. A list of unique hospitals will be beneficial to Hospitals, Insurers, Govt. Agencies and also the Public.

·         Claims payment can be accelerated

·         Fast, reliable and relevant Analytics

·         Geography based trends, patterns of disease occurrence, cost patterns, etc.

·         Footprint is visible

·         Will aid in the Fraud Analytics efforts of IRDAI

Ministry of Health and Family Welfare is working on standardizing treatment procedures and costing templates. Efforts are being made by IRDAI-FICCI to categorize hospitals. Unique Hospitals would complement all of these projects as well.

A simple illustration may be seen in Table 2 where the outlier analysis throws out more meaningful results when the hospital is correctly identified.

Table 2

	Cost of treatment for Disease type Cholera
	Database A	Database B	Database C	Database D	Database E
	ABC Hospital	The ABC Hospital & Emergency Services	ABC Hospitals Pvt. Ltd	ABC Hospital Group	ABC Group of Hospitals
Claim Paid 1	16,016	2,093	33,115	24,299	39,113
Claim Paid 2	16,577	27,929	22,919	19,366	26,343
Claim Paid 3	12,122	23,767	30,916	29,279	26,000
Claim Paid 4	16,134	25,958	31,108	21,147	15,500
Claim Paid 5	10,280	15,981	1,99,400	26,828	25,000
Average claim paid per hospital	14,226	19,146	63,492	24,184	26,391
Overall Average claim paid	29,488
Highlight Outliers where Claim paid or amount claimed is above/below +/- 50% of the average for the hospital
	Database A	Database B	Database C	Database D	Database E
	ABC Hospital	The ABC Hospital & Emergency Services	ABC Hospitals Pvt. Ltd	ABC Hospital Group	ABC Group of Hospitals
Claim Paid 1	-	Outlier	Outlier	-	-
Claim Paid 2	-	-	Outlier	-	-
Claim Paid 3	-	-	Outlier	-	-
Claim Paid 4	-	-	Outlier	-	-
Claim Paid 5	-	-	Outlier	-	-
If the Hospital is identified as the same hospital in all databases, the average claim paid will be Rs 29,488/- across all 25 claims.
	Database A	Database B	Database C	Database D	Database E
	ABC Hospital	ABC Hospital	ABC Hospital	ABC Hospital	ABC Hospital
Claim Paid 1	-	Outlier	-	-	-
Claim Paid 2	-	-	-	-	-
Claim Paid 3	Outlier	-	-	-	-
Claim Paid 4	-	-	-	-	-
Claim Paid 5	Outlier		Outlier	-	-