Health Insurance

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Health Insurance
Need of the Hour
J ANITA D CHAKRAVARTHI
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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
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Progression of Health Insurance business in India
(cont.)
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Journey of Life health insurance products since
2003..
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Opportunities in Health Insurance
Source 2009 WHO fact sheet based on 2006 data
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Opportunities in Health Insurance
Source 2009 WHO fact sheet based on 2006 data
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Opportunities in Health Insurance
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
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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Healthy life expectancy of India indicates that
there is higher need of health insurance from age
60.
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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 penetrationHow 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, customers 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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Thank You