Voluntary Insurance Sector in India

Partnering To Achieve Greater Coverage For Health

Indrani Gupta
Mayur Trivedi

July 2005

Institute of Economic Growth, Delhi, India

Support for this research was provided by the Center for Global Development's Global Health
Policy Research Network, a program funded by the Bill & Melinda Gates Foundation. We
are also grateful to the National Insurance Company Limited, India, for allowing us access to
their database and extending all cooperation in this research collaboration.
 I. Background

Health for All is still a distant dream in India, with a large proportion of the population still
unable to access quality health care. Evidence abounds on the inability of the health system
to give affordable, accessible, available and quality care to those who need it the most (World
Bank 2001). The Tenth Five–year Plan document admits, “In all states, patients incur out-of–
pocket expenses to meet the health care cost in public and privately-funded hospitals.…there
are massive differences in private spending on health care services in public and private
facilities between states….the high and low spending in private and public sector do not
always go hand in hand with each other… the poorer segments of population have less
access to both public and private sector curative services than the better off sections. The out-
of-pocket expense on both public and private facilities for the lowest income quintile is about
one-fifth that of the highest quintile population suggesting thereby that the richest quintile
utilise both private and public facilities more than the poorest quintile. The question whether
the amount spent by different segments of the population results in their receiving the
appropriate care remains unanswered as the country is yet to evolve and monitor appropriate
treatment protocols and cost of care for specific illnesses in different settings” (Planning
Commission 2004).

Clearly, high out-of-pocket burden of health care continues to be a major issue, and injects
further inequities into a system already plagued by access and quality concerns, which impact
differentially on the population. In this scenario, how does one hope to achieve the “Health
for All” target? While it would be difficult to achieve this target in a very short time, one
way of making some progress towards it would be to find ways of extending health coverage
to the population. In other words, “Health Coverage for All” could be the tool for achieving
Health for All (Gupta and Trivedi 2004).

This in turn raises the following question: how can India achieve the goal of adequate health
coverage for its population? In this paper we argue that since there are practical constraints
in scaling up social health insurance as well as stand-alone community health insurance
schemes, one way of achieving greater coverage is to use the as-yet untapped potential that
exists in the voluntary (commercial) health insurance sector. In particular, it may be
necessary to build and promote productive partnerships among different stakeholders
involved in the health insurance sector, who are currently by and large working on their own.

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Specifically, insurance companies in both the private and public sectors should be involved in
productive partnerships with the government, community based organizations and providers
in the endeavour to extend health coverage to the population.

Health insurance business in the private as well as the public sector has been increasing both
in terms of premiums and numbers. The growth in private sector has been higher than the
growth in the public sector; at the same time, a lesser known fact is that the public sector (and
now the private sector though to a much lesser extent) has been undertaking innovative
partnerships at the community level as well as with state governments, to offer tailor-made
health insurance policies at reasonable costs. (Gupta and Trivedi, 2004) There are several
successful models that need to be documented and studied. In particular, the policymakers
need to study and understand the cases of partnerships involving the insurance sector, the
government, the NGO sector or community based organizations that have worked
productively in extending health coverage to specified populations. Here, we will argue that
such innovations and partnerships are critical in the overall scenario of health coverage and
its expansions. Since the voluntary commercial health insurance sector is here to stay and
grow, such collaborations can only lead to a win-win situation, with many better off and no
one worse off.

The paper will look at the role that insurance companies, that offer voluntary insurance, can
play in helping the country achieve greater health coverage. This analysis will involve a
closer look at the data of one public sector insurance company – National Insurance
Company Ltd. – as a prototype of commercial voluntary insurance, to better understand their
role in the health insurance scenario, and examine whether and how they can make a positive
difference to the health insurance scenario in India.

In Section II we discuss the current health coverage set up in India, and point out the inherent
limitations of scaling up in the present scenario. Section III gives an overview of the state of
private/voluntary insurance in India, including the growth in this sector. Section IV
introduces one major health insurance product available in the Indian market today –
Mediclaim - and explains its features in some detail, and also discusses the growth in demand
for this product. In Section V we present an analysis of the potential of voluntary health
insurance in India using the Mediclaim data collected from National Insurance Company
(NIC). With this analysis in mind, Section VI presents a discussion on the financial and other

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implications around scaling up issues and in particular discusses partnerships that may be
required to expand health coverage in India. Finally, Section VII presents the summary and
conclusions of this analysis and charts out the steps that are needed to move ahead to achieve
the goal of Coverage for All.

II. Health Coverage in India: Current Scenario

What is the health insurance situation in India? Several studies now exist on the state of
health insurance in India (Ellis et al 2000, Gumber2002); here we present an overview of the
existing state of coverage under different schemes. Table 1 indicates the share of the various
forms of heath coverage in India.
Table 1: Health insurance coverage in India
Schemes Beneficiaries (In million)
The Employees State Insurance Scheme (ESIS) 25.3
Central Government Health Scheme (CGHS) 4.31
Railways Health Scheme 8
Defense employees 6.6
Ex-servicemen 7.5
Mining and plantations (public sector) 4
Health insurance (Public sector non-life companies) 10
Health insurance (Private sector non-life companies) 0.8
Health segment of Life insurance companies 0.232
(Public and private sector)
State sponsored schemes <0.5
Employer run facilities/reimbursement schemes of private 6
sector
Employer run facilities/reimbursement schemes of public <8
sector
Community health schemes 3
Total ~85
Source: Gupta and Trivedi (2004a)

Overall, India has a mix of health coverage: employees in the government and public sector
undertakings get various kinds of coverage in lieu of employment, e.g. organized sector
workers earning less than Rs. 7000 get covered through the Employees State Insurance
Scheme (ESIS), private corporate sector offers health coverage either as a perk or through

1
Recent estimates (as mentioned in the budget 2005-06) is 4.47 million
2
A more recent figure till September 2004 is 0.32.

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formal insurance coverage taken through insurance companies, and community health
insurance is offered in a sporadic fashion in many states to specific sections of the population.

There is only one nation-wide scheme that has the three most important features of social
health insurance (SHI) – compulsory contributions based on earnings, contribution from the
employers and a separate autonomous body to manage the funds. Only Employee State
Insurance Scheme (ESIS) qualifies as SHI in its classical definition. The three main
characteristics of this scheme are that it is mandatory, contributory and there is the Employer
State Insurance Corporation (ESIC) that acts as the autonomous body and manages the funds.
Next to ESIS, the Central Government Health Scheme (CGHS), including those who are
covered under the Medical Attendance Rule (All India Services (Medical Attendance) Rules,
1954), is the most important scheme, covering government employees, working and retired.
These are then the two important schemes that cover most of the states of the country under a
uniform administrative structure, and together extend coverage to around 20-25 percent
(depending on the assumed family size) of the organized sector population, including
dependents. Overall, these schemes probably cover less than 3 percent of the population,
though in the absence of firm numbers, these are only the best guesses.

It the recent past, SHI has been much discussed in policy circles as an important tool to
extend health coverage to a majority of the population (WHO, 2003a 2003b). However,
expansion of SHI is critically dependent on the share of the organized sector in employment,
which is still quite low in India; in any case the organized sector has other means of health
coverage as can be seen from Table 1. While estimates are not available, even if we assume
that all the organized sector employees and their dependents are covered, about 135 million
individuals can be covered, assuming an average household size of 5. This implies that at
most only 13 percent of the population may be covered by all the existing schemes in the
organized sector, including SHI.

The rest of the population has recourse to the insurance being offered by public and private
sector insurance companies, depending on the ability to pay. Some are covered by
community health insurance and the remaining go without any insurance. The number of
people covered by health insurance of non-life insurance companies is 10.8 million; health
insurance by life insurance companies is 0.23 million. This implies that a very small

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percentage of the population – around 1 percent - is covered by commercial health insurance
offered by public sector and private sector insurance companies.

However, the growth in this sector in the recent years has been significant, and it will be
argued here that the potential of making use of this vibrant sector to provide low cost health
insurance is enormous. The aim should be to move on all fronts, and extend coverage in
whatever form is workable and feasible, keeping in mind the goals of such coverage. If the
goal is to ensure that a majority of the population has access to health cover that assures them
quality care, then one should be open to any and every innovation and combination of health
benefits/insurance/coverage that go towards meeting this objective. In the next section, we
discuss in more detail the growth in voluntary insurance sector in India.

III. Voluntary health insurance in India3

Voluntary insurance sector can be broadly classified in two segments viz. life and non-life;
voluntary ‘health’ insurance is a component of ‘non-life’ insurance segment. Till the
liberalization and opening up, the insurance sector was operating with two public sector
companies – Life Insurance Corporation of India - for life insurance, and General Insurance
Corporation (GIC) with its four regional subsidiaries - for non-life insurance. With the entry
of the private insurers, the GIC subsidiaries were restructured as separate companies in the
year 2000, and a separate body called General Insurers (Public Sector) Association (GIPSA)
was created to facilitate the interaction among the four companies. The GIC was converted to
function as the only Indian Re-insurer. This restructuring has helped in generating
competitive environment in the ‘non-life’ segment of the insurance sector, which has seen a
rapid expansion with an average annual growth of 14 percent in the past few years. The gross
premium has increased from Rs. 9,522 crores in 1999-2000 to Rs. 16,128 crores in 2003-04
(IRDA, 2004) and to more than Rs. 18000 crores in 2004-05 (IRDA 2005). The growth of
public sector companies has slowed down in the recent years while the private sector
companies – that are trying to create their niche – are growing rapidly.

3
It should be noted that the use of the term “voluntary” is being used here to refer solely to the insurance being
offered by the public and private sector companies, and does not refer to stand-alone community health
insurance schemes.

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The evolution of the voluntary health insurance sector in India started with the introduction of
the Mediclaim policy by GIC in 1986-87. It was, till recently, a reimbursement policy
covering hospitalization and domiciliary hospitalization for a pre-specified period, but with
the entry of the Third Party Administrators (TPAs), the option of cashless hospitalization
facilities is available from the network hospitals. The coverage is available to any individual
aged 5 to 80 years, and the sum insured can be chosen between Rs. 15,000 - Rs 5,00,000.
There are additional features like reimbursement of the cost of medical check-up, claim free
bonus, family discount etc, and for the group policies additional benefits like maternity
coverage and family floaters are also available.

How successful has Mediclaim been in India from a business perspective? While the details
on the performance of the Mediclaim in its early years are not available, during 1999-2000,
the last year before the entry of private companies, some 2.3 million Mediclaim policies were
sold, adding up to a total health premium of Rs. 200 crores. (Gina Singh, 2001)4. With the
entry of the private players, the health business has also increased sharply. The health
premium has shown an impressive eight-fold growth in the last five years reaching Rs. 1732
crores in 2004-05. This statistics clearly reflects the contribution of the health segment to the
overall growth of insurance sector; while insurance sector is growing as a whole, the health
segment is contributing to this growth to a great extent.

Table 2: Percentage growth in gross premium in insurance companies in 2003-05

2003-04 2004-05
Insurer
Fire Marine Engg. Motor Health Total Fire Marine Engg. Motor Health Total
Public sector -3.33 -13.32 -4.44 13.46 28.89 6.56 -1.46 2.85 4.31 9.30 17.79 5.43
New India -10.97 -21.90 18.79 8.06 54.92 3.17 2.54 -2.31 -3.71 8.23 27.33 4.38
National -1.63 -13.14 -19.62 29.73 42.36 18.27 3.05 34.93 4.68 19.02 26.28 11.94
United India 4.67 -11.32 -6.46 3.87 10.85 3.33 -6.69 -18.57 10.42 -7.79 5.24 -3.77
Oriental -1.62 -4.01 -7.03 12.28 7.87 1.02 -5.61 10.00 5.87 14.80 6.85 7.31
Private sector 63.58 120.85 43.51 86.67 130.32 67.40 28.70 48.56 60.48 70.39 114.21 57.35

Total 6.57 -3.92 3.94 18.66 35.13 12.30 5.39 10.22 17.85 16.13 27.91 12.73

As Table 2 indicates, in the year 2003-04, the gross premium of health segment increased by
35 percent compared to 19 percent in Motor insurance and 7 percent in Fire insurance; for the
public sector companies at least, the health insurance segment has shown the most growth.

4
http://www.jobsahead.com/services/jobworld/mag/0129/5/

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During 2004-05, health insurance segment continued to top the list, however at a slower rate
of 28 percent.

In terms of share of the business, however, health insurance still remains a small segment for
non-life insurance companies. Table 3 shows the proportion of major segments in non-life
insurance business across public and private sectors. In 2002-03, the health segment was the
least important portfolio (among these five categories) comprising only 4.6 percent of total
business of private sector companies; for the public sector companies it was only 7 percent of
total business. In 2004-05, health is third important portfolio after Motor and Fire segments.
The health portfolio has got a higher momentum for private sector companies, where the
proportion has almost doubled to reach 8.6 percent of total business in 2004-05. Even for the
public sector companies over the years, the health portfolio has grown from 7.3 percent to
about 10 percent of total business in 2004-05.

Table 3: Proportion of major business segments in non-life insurance sector

Segment 2002-03 2003-04 2004-05
Motor 39.0 41.5 43.1
Fire 19.6 17.8 16.6
Public sector Health 7.3 8.8 9.8
Marine (Cargo+ Hull) 8.7 7.0 6.9
Engg. 4.3 3.9 3.9
Motor 28.7 32.0 34.6
Fire 32.7 32.0 26.1
Private sector Health 4.6 6.3 8.6
Marine (Cargo+ Hull) 6.3 8.3 7.8
Engg. 8.8 7.6 7.7
Motor 38.0 40.2 41.4
Fire 20.9 19.8 18.5
Combined Health 7.0 8.4 9.6
Marine (Cargo+ Hull) 8.4 7.2 7.1
Engg. 4.8 4.4 4.6

100% 6 .2 10 .5
How does the picture differ across various
90% 17.6
2 3 .0
80%
70%
18 . 3
15.3 companies? As Graph 1 indicates, the major
60% 2 5.2 2 0 .6 17.0
50% proportion of the health business is still with the
40% 2 1. 3 2 1.0
2 0 .2
30% public sector companies. While the private sector
20%
2 5.5 2 9 .2 2 9 .1
10%
0%
expanded from as little as 6.2 percent in 2002-03
2002-03 2003-04 2004-05
Ye a r to 17.6 percent of total health business in 2004-05,
N ew I nd i a N at io nal
U nit ed I nd i a
Pr i vat e sect o r
O r ient al the public sector remains the major health insurer

Graph 1: Market share of health insurance in India. Among the public sector companies,
premium across companies over the years

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New India Assurance Company Limited (NIACL) has the highest share with 25 percent and
29 percent respectively in 2002-03 and 2004-05, followed by National Insurance Co. Ltd
(NIC), which has 21 percent of the total health business in 2004-05. While private sector
companies are also slowly acquiring market shares, two public sector companies – Oriental
Insurance and United India Insurance – have seen significant reduction of 8 and 7 percent in
their market share, respectively.

Table 4 gives further details of the growth of health and other non-life business. The health
segment looks quite vibrant among the private players. The ICICI Lombard and Bajaj Allianz
are the main players in the health business. Cholamandalam – the latest entrant in the
business - seems to be focusing more on its health business; 12 percent of its business
comprises health insurance, which is the second highest among the private players, followed
by 13 percent of the top player ICICI Lombard. The rapid growth – of total non-life and
health - during last two year suggests that the insurance market, including health insurance
market, has benefited immensely from the opening up and privatization, and is probably
going to see an even higher growth in the near future.

Table 4: Details of health business across various insurers during 2003-2004

Health premium as a Growth of health Growth of total
Health premium
percentage of total premium premium
Insurer (In Rs. Crores)
non-life business (2003/04-2004/05) (2003/04-2004/05)
2004-05
2004-05 (%) (%)
ICICI Lombard 118.78 13.4 257.0 74.7
Bajaj Allianz 70.39 8.3 242.2 79.0
Royal Sundaram 30.02 9.1 88.8 28.5
IFFCO-Tokio 28.37 5.6 73.3 56.0
Tata AIG 26.64 5.7 35.3 32.7
Cholamandalam 20.12 11.8 75.3
Reliance 7.98 4.9 2.4 0.3
HDFC Chubb 1.97 1.1 0.0 59.2
Private sector 304.27 8.6 148.0 55.3
New India 504.28 11.9 43.9 4.5
National 364.29 9.5 26.3 11.9
United India 294.19 10.0 5.2 -3.8
Oriental 265.14 8.7 13.9 5.9
Public sector 1427.9 9.8 24.0 5.2
Total 1732.17 9.6 36.0 12.3

In comparison to the private sector, the public sector companies have witnessed relatively
slower growth. The total business has grown by only 5 percent while the health segment has
increased by 24 percent, both the numbers being much lower than the 55 percent and 148

8
percent respectively in the private sector. However, it must be remembered that the private
sectors have the advantage of latecomers with a lower base, so any increase over these levels
would look substantial. Also, in terms of volume of business, the four public sector
companies had about Rs 1,428 crores of business in 2004-05, whereas the private sector
companies together had a modest Rs 304 crores. Among the public sector insurers, NIA
seems to be focusing on health portfolio with 44 percent growth in the year 2004-05.
Overall, even in the public sector, health business is growing faster than other non-life
business. It is interesting to see that the market shares of different companies keep changing
over time, which is an indicator of a thriving and competitive market. Thus, the time is ripe
for health policymakers to go ahead with innovations and forge partnerships between
insurance companies on the one hand, and service providers including NGOs on the other, to
expand the scope of health coverage in India.

In sum, it can be safely said that in the coming years, the growth of the voluntary health
insurance business is likely to escalate. Although the typical product available in the market
(Mediclaim) is restricted to only an omnibus policy, with no element of risk differentiation
and no choice of cover specific to the client’s requirement, the business is growing and is
likely to grow more. There have already been innovations in this standard product and many
similar but more flexible products are out in the market as well, from both the private and the
public sector. It is clear that there is immense scope for exploiting this ‘growth’ opportunity
for extending health coverage beyond the traditional clientele through innovation and
partnerships. In the next section, we will take a closer look at the demand side issues by
analyzing the Mediclaim data of NIC.

IV. Mediclaim data: overview

Mediclaim is the standardized health insurance policy offered by all the public sector
companies. It is the largest and oldest voluntary health coverage available in the country, and
it is therefore important to study it in detail to understand the voluntary health insurance
sector in India. Despite it being the major scheme in India, the data on Mediclaim
policyholders is inadequate. The profile of the individuals is available only from the
document in which the insured submits the policyholders’ details at the time of purchasing
the policy. This document has very limited information and lacks the important variables on

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occupation and socio-economic status. Geographical detail like place of residence is available
from the policy document but the data is currently kept in a way that does not allow
researchers to classify locations beyond regional offices/major cities. The demographic
variables including age, gender and relation of the insured to the policyholder, the claims
related variables - claim submission date, cheque date etc. and corresponding amount figures
- are available in a more systematic manner. However, the details of service providers, place
of treatment, and disease related information - while available – is being compiled in a format
which makes it difficult to code the variables, and thus, makes this information practically
unusable for empirical research. The insurers and the IRDA focus on only premium and
claims related data to assess the business implications, and thus maintain the database only of
these variables. These data issues, therefore, make it difficult to study empirically, the
demand for Mediclaim.

IRDA, recognizing the potential of health insurance and the data needs, has set up a Health
Insurance Working Group, and within that a Data Sub-group to study the various data-related
issue. The sub-group report has several recommendations for streamlining the database and
making it much more uniform across insurers. While the insurance companies and TPAs are
trying to put this system in place, there is immense scope of improvement in health insurance
database management to make the data useful and readily available. The availability of
systematic and uniform database, across insurance companies and TPAs is imperative for a
better understanding of the growth and potential of health insurance in India. It is not only
urgent but also necessary for the IRDA and GIPSA to coordinate and facilitate this process,
and to ensure that health insurance (and other insurance as well) database is centralized and
accessible for stakeholders, including researchers and policymakers.

Mediclaim data of NIC

As mentioned above, NIC agreed to make available to IEG the Mediclaim data for research
purposes, in a mutual a collaboration that was unique in its novelty (a research organisation
working closely with an insurance company) and important from the perspective of informing
policy. Below, we describe the process of data gathering, essentially to highlight the need for
coordination and centralisation of insurance database in the country, and also to highlight
reasons for the limited scope of empirical analysis.

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Early discussions with NIC officials around data revealed that the policyholders’ information
was available at the peripheral level i.e. at the branch and divisional offices, and only
business related figures – details of claims and premiums- came to the head office through
regional offices. The process of interconnecting the various company offices through
computerized network was still not in place, and thus the data collection for this study was to
be done from more than one place. There were two possible ways of doing that – either from
a sample of various NIC offices, or through a sample of Third Party Administrators (TPAs)
appointed by NIC. The latter option seemed more feasible and thus, initially, four TPAs were
contacted.

The experience with these relatively new players in the insurance sector was both interesting
and a learning process. TPAs mange the policyholder’s database through tailor-made
computerized softwares, that so far, all of them separately develop for their own database
management purposes. There is as yet no directives or recommendations from either the
IRDA or GIPSA to have standardized softwares across TPAs. The differences in the format
of Mediclaim database across the selected NIC appointed TPAs, and their limited
understanding of the utility of such database for macro policy research made the data
extraction, cleaning and merging a difficult and time-consuming process. Considering the
optimum data structure and its research utility, out of the four TPAs, data from only two
TPAs were used. Data cleaning, to make the data research-worthy, was an equally
challenging task. It took several rounds of discussion with the concerned TPAs to understand
the data fully, and a significant part of the data had to be discarded due to essentially data
entry errors. Below, we present a table that explains the data received, cleaned and therefore
usable.

Table 5: Details of sample size before and after data cleaning

Individual Policies Group Policies
Raw data Cleaned Raw data Cleaned
TPA5
from TPA Data from TPA data
TOTAL With Claim TOTAL With Claim TOTAL With Claim TOTAL With Claim
TPA 1 296477 11787 292591 8193 237,164 6622 230813 6187
TPA 2 33426 773 33385 773 4146 198 4136 193
TOTAL 329903 12560 325976 8966 241,310 6,820 234,949 6,380

5
The names of the TPAs have not been mentioned for the sake of confidentiality

11
Since the TPAs use different softwares, the variables and its respective terminology also
differ across the TPAs. Below we discuss few such key issues.

Type of policy: Since its inception, Mediclaim policy has undergone several structural
changes; currently it can be classified broadly in two segments viz. Individual and Group
policies. The Group policies are mainly meant for the corporate houses, where generally
these are offered as health benefits to the employees. However, as it emerged from the
various discussions with TPAs, and also from the data, several corporate companies prefer to
buy ‘Individual policies’ for their employees. The incentive for doing this may lie in the fact
that the agents’ commission is much less in the group policies than in the individual policies,
and there are off-the-record reports that agents do influence some companies to buy the
coverage under the ‘Individual’ type for financial benefits. The immediate implication of this
is that not all the ‘Individual policies’ are based on the idea of willingness to avoid health
costs, but like Group policies, a part of the Individual policies comprise policyholders who
are receiving health benefits from the employers. We will return to this issue later in the
analysis.

Family Floater: This is a feature of Group policy where by paying a specified premium, all
the family members of the employees can be covered. The sum insured or the coverage
amount can be used for the principal insured or together for the family members. Thus,
having a family floater would imply that the entire family could claim up to the sum insured
amount during the policy period. Such benefits are not available for Individual policies; but a
feature called ‘family discount’ is available instead. Unlike family floater, if one wants to
insure family members in Individual policies, there is a provision of discount of some
percentage (generally 10 percent) on total premium payable to insure all family members.
Thus, in family discount, the sum insured amount is different for different family members,
and if one member exhausts his/her coverage, the coverage amount of other family member
cannot be used.

Completed policies: The data collected from the TPAs give a cross section view of
policyholders. There are two variables relating to time period in the database: ‘period from’
and ‘period to’, and the difference of these two is the policy period. While the former states
the date from which the coverage comes into existence, the later date is the corresponding
date in the next year when the policy expires. The TPA database comprises policies

12
irrespective of whether it is alive or expired at the time of data extraction. As would be
discussed later, for the analysis of profile of policyholders, we have used the full database,
but to understand the issues around claims and reimbursements, we have taken only those
that are completed before the date of extraction. In other words, we would be using only
expired policies – whose ‘period to’ date is prior to the date of extraction – for the claims
related analysis. This will ensure that the claims occurrence is exclusively for those who have
experienced the policy period of one year fully. With this background, we turn next to the
analysis of the NIC data.

V. Analysis of Mediclaim

The analysis would primarily discuss two dimensions viz. the profile of the insured - to
understand the demand of the voluntary insurance - and claims experience to understand the
empirical evidences on the costs and benefits of voluntary health coverage.

Profile of policyholders

Policy type: For the reasons explained earlier, we have divided Individual policies in three
categories: Individual policies, ‘Individual policies, Group’, and ‘Individual policies, Group-
self’. The first sub-category is the true representation of individuals who have bought the
policy to avoid health costs and paid for it. The difference in the later two ‘group-like’
individual policies is as following: ‘Individual policies, Group’ comprise policies where
family members of the employees of the organisation are covered under different ‘Individual’
policies (unlike Group policy where one policy covers several individuals), whereas in the
‘Individual policies, Group-self’, the relation code for all the cardholders is ‘self’. This may
include special cases where only employee (and not the family) is covered. The assumption
gets endorsed when we look at the age distribution where the majority of the individuals in
this category are beyond 19 years. For the rest of the discussion and analysis, we will use the
first category of the Individual policies and the second major category - Group policies.

Table 6 explains the distribution of total and completed policies across the different policy
types. While there are more policies for the Individual type, the distribution of individuals
covered under group and individual policies are almost equal, representing 48 and 42
percentage of cardholders respectively. As for the completed policies, out of a total of

13
 5,60,925 cardholders, only 31 percent have completed full one-year duration. The
corresponding figures for individual and group policies are 24 percent and 37 percent
respectively. For the group policies, the 2,34,949 cardholders are spread across 389 policies
and 414 group companies.

Table 6: Detail of the NIC database

Particulars Total Completed
No. of No. of % of No. of No. of % of
Premium categories
policies cardholders cardholders policies cardholders cardholders

Individual policies 108,790 268408 47.85 26,738 63,565 36.71

Individual policy ‘Group’ 162 46376 8.27 46 21,362 12.34
Individual policy ‘Group -self’ 26 11192 2.00 5 751 0.43
Group policies 389 234949 41.89 81 87,475 50.52

Total 109,367 560925 100 26,870 173,154 100

Age and gender profile of the insured: Who buys the policy and who gets covered under
various Mediclaim policies? As can be seen from Figure 1, almost one-third of the insured
individuals (34%) belong to the age category of 40-59 years. The lower age category of
below 30 years – the potential target for the insurance pool - comprises only 38 percent.

Elderly2(70 years and above) Elderly2(70 years and above)

Elderly1(60-69 years) Elderly1(60-69 years)

Adult 3(40-59 years) Adult3(40-59 years)

Adult 2(30-39 years) Adult2(30-39 years)

Adult 1 (20-29 years) Adult1 (20-29 years)

Adolescent s (10-19 year) Adolescents (10-19 year)

Child(below 9 years) Child(below 9 years)

-40 -30 -20 -10 0 10 20 30 40 -40 -30 -20 -10 0 10 20 30 40

M ale Female M ale Female

Figure 1 Age pyramid for NIC insured Figure 2 Age pyramid for urban India

14
While it is clear from the figure above that people tend to buy health insurance in the later
stages of their life, what is the age distribution of the potential target group? The metropolitan
cities account for 80 per cent of Group and 65 per cent of Individual premiums, which
indicates that the majority of the Mediclaim clientele is urban centric. (Gupta A, 2004). Thus,
the potential of the health insurance can be better understood by comparing the age
distribution with that of the urban population of India. As described in Figure 2, more than 60
per cent of the total urban population of India is below 30 years and only 17 percent belong to
the category 40-59 years. This finding is in keeping with the adverse selection problem faced
by insurers. It has not been possible for the company to capitalize on the benefits of voluntary
health coverage in the early years of life, and thus the clientele lacks the essential ‘young’
insured individuals in the pool to ensure adequate risk sharing.

Does the age profile differ across Group and Individual policies? The average ages of the
insured in Group and Individual policies are 34.3 and 35.5 respectively. However, the
problem of adverse selection (late age of insured and potential of higher morbidity rates)
indicates that it is more useful to look at the age of the principal insured, since it indicates
‘when’ the insured is willing to avoid health costs. The relation code ‘self’ indicates the
principal insured and the rest of the family members are covered additionally. Moreover,
since the Group policies are generally offered as a benefit and the insured pay themselves in
case of Individual policies, the age profile of the principal insured across two type of policies
would be useful to understand the willingness to avoid health costs through insurance
coverage. Below, in Figures 3 and 4, we present two age pyramids for the Individual and
Group policies for the principal insured, i.e. those cardholders whose relation code is ‘self.

Elderly2(70 years and above)

Elderly2(70 years and above)
Elderly1(60-69 years)
Elderly1(60-69 years)
Adult3(40-59 years)
Adult 3(40-59 years)
Adult 2(30-39 years)
Adult2(30-39 years)

Adult 1 (20-29 years)

Adult1 (20-29 years)
Adolescents (10-19 year)
Adolescent s (10-19 year)
Child(below 9 years)
Child(below 9 years)
-60 -50 -40 -30 -20 -10 0 10 20 30 40 50 60
- 50 - 40 -30 -20 - 10 0 10 20 30 40 50 60

Male Female Male Female

Figure 3: Age pyramid for the principal Figure 4 Age pyramid for the principal
insured in Individual policies insured in Group policies

15
The age distribution is strikingly different for Group and Individual policies. While in
Individual policies, more than half of the ‘principal’ insured belong to the age group of 40-
59, the distribution is more or less equal across the three adult groups viz. 20-29 years, 30-39
years and 40-59 years in the group policies, with almost one third in the youngest category of
20-29 years. This clearly indicates that since the Group policies are being offered as benefits
and the insured need not necessarily pay for it, the age distribution is relatively ‘young’
centric. Given a choice, if one has to buy insurance out of pocket, the tendency as revealed by
the data is to postpone the decision to a much later stage in life. This also indicates that there
is a lack of appreciation for the need for health insurance in India.

What is the gender distribution for the insured? Do women tend to insure themselves or are
they passive receivers of insurance through main members of the family? Overall, gender
distribution is equal for group and individual policies with a slightly higher proportion of
male (54%) getting covered under the former one. However, to understand the real gender
perspective one should look at the distribution according to the relationship to the principal
insured. When we look at the gender distribution in case of the principal insured, males
dominate in both the categories with more than 80 percent men being the principal insured.
This only reaffirms earlier findings on limited choice that females have in decision-making,
including in health related matters. Table 3 indicates the gender distribution in relation to the
principal insured for the two policy types. For both the categories only 13 percent of females
belong to the ‘self’ category, compared to 55 percent of the male in the Group policies and
almost two-thirds of males in the Individual policies, which indicate the skewed choice of
coverage and predominantly male decision-making. The difference in the proportion of the
‘spouse’ in both the categories reiterates the same phenomenon.

Table 3: Gender distribution across type of policies

Male Female
Relation to principal insured
Group Individual Group Individual
Self 55.42 64.77 13.00 13.01
Spouse 3.84 2.86 40.14 54.06
Children 26.29 30.09 24.89 26.74
Others 14.44 2.28 21.97 6.18

Is there any relation between age and gender distribution for the insured? If we revisit
Graphs 3 and 4, the 40-59 year age category overrides all other age categories for both the
gender for Individual policies. For the Group policies, almost half of the female principal

16
insured belongs to the young age category of 20-29 years, compared to 40-59 years age
category, which comprises half of the male principal insured. While the earlier graph
indicates the overall distribution, it is essential to understand the age distribution for the
female insured across various relationship codes. In Graphs 5 and 6, we look at the age
distribution of the female as a principal insured and insured as a spouse, for individual and
group policies respectively.

Elderly2(70 years and above)

Elderly2(70 years and above)

Elderly1(60- 69 years)
Elderly1(60- 69 years)

Adult3(40-59 years)
Adult3(40-59 years)

Adult2(30-39 years)
Adult 2(30-39 years)

Adult1 (20-29 years)

Adult 1 (20-29 years)

Adolescents ( 10-19 years)

Adolescents ( 10-19 years)

0 10 20 30 40 50 60
0 10 20 30 40 50
Pr o p o r t i o n o f t he f emale insur ed p r o p o r t io n o f f emale i nsur ed
Spouse Self
Spouse Self

Graph 5: Distribution of the female insured - Graph 6: Distribution of the female insured -
Individual policies Group policies

The difference in Individual and Group is again visible here. In the Individual policies,
almost half of the female ‘self’ as well as ‘spouse’ belong to the age category of 40-59 years,
indicating that women tend to get insured at the later stages of life. In Group policies, almost
half of the ‘self’ female insured belongs to the relatively young age category of 20-29 years
and the ‘spouse’ female insured are distributed across the three age groups more or less
evenly. Unlike the Individual policies, where almost 15 percent of the ‘self’ female insured
are 60 years or more, these elderly age groups are non-existent in the case of group policies.

These results also indicate the supply side issues of Mediclaim. The relatively inflexible
structure of Mediclaim makes it a somewhat difficult product to sell across the various
segments of society. As for the gender perspective, relatively higher female coverage for the
group policies may indicate two possibilities: when it comes to paying for the coverage,
female family members seem to be passive receivers of insurance, and get covered with their
husbands, instead of getting enrolled themselves. Secondly, it is also possible, that since the
female – oriented benefits like maternity cover is available only in the Group schemes, there
are lesser incentives for females to get insured for individual policies. These results are
important to bear in mind in the current context, when experiments to capture economically

17
disadvantaged individuals are taking place through innovations like Universal Health
Insurance Scheme. It is necessary to think of various options to cover individuals across
different age groups and across gender, through flexible premium and relatively flexible
coverage options. The change in the structure of Mediclaim, by making it a) female- friendly
and b) attractive to lower-age and c) similar for both the Group and Individual type of
policies, needs to be considered for expanding the coverage.

VI: Financial implications for the households

To understand whether and how households benefit from buying health insurance policies,
we need to analyse the premiums, sum insured and claims. A few points of clarifications are
in order before we turn to the analysis.

Firstly, to understand how the claims vary according to premiums, we need to restrict the data
to only those who have completed one year’s policy; else the numbers would mis-state the
correlation of claims to premiums. Only 24 percent of the group and 37 percent of the
individual policies in the dataset had been “complete”, in the sense that these are the policies
that had duration of one completed year. The analysis on claims is therefore restricted to
these policies only.

Secondly, there are two levels in which the analysis should be done: Individual and Group,
because the differences between these reveal some interesting results pertaining to policies of
insurance companies.

Finally, the analysis can be further done at the level of either households or individuals; in
addition, for the group policies, there can be an added angle, to see the per capita group (ex.
companies) variables as well. We will indicate below wherever relevant, the various
aggregates being used in the analysis.

Further, slightly less than 3 percent of the completed Group policies and less than 5 percent
of the completed Individual policies had put in claims. It would be interesting to compare the
rate of morbidity from NSS data, to verify whether the percentages mentioned are close to the
actual rates of morbidity in a randomly selected sample of households. The NSS data
indicates that in urban India, the morbidity rate was around 2 percent in 1995-96, with a

18
range of 1-3.5 percent depending on the income class of the individual (Gupta 2004?). This
indicates that the Mediclaim data on claims is very much within reasonable limits.

What kind of burden do households face from ill health, especially hospitalisation? The
National Sample Survey data of 1995-96 reveal that per capita annual expenditure on acute
illnesses was around Rs. 2000 for 1995-96 (Gupta 2003). The price rise between these 10
years’ in urban non-manual employees is about 60 percent. Thus, per capita expenditure in
today’s prices should be around Rs. 3200.

Keeping these statistics in mind, we turn to Table 4, which shows per capita individual and
household premium and sum insured for both Group and Individual policies for all the
cardholders.

Table 4: Per capita Premium and Sum Insured in Mediclaim

Per capita premium Per capita sum insured Size
HH Individual HH Individual HH
Group 3194 1150 511009 183984 2.78
Individual 3164 1282 206830 83831 2.47
All 3179 1216 358920 133908 2.63

If we look at the household size, which really means the average number of individuals who
are covered in a household, it is 2.5 for Individual and 2.8 for Group policyholders. The
average household size in India is 5, which immediately indicates that there is a lot of scope
for expanding coverage. These numbers also indicate that individual policies are being
undersold to a greater extent than group policies; this conclusion is even more valid if the
average household size in the general population is greater than the size calculated based on
the employees of the companies that go in for group insurance. While it cannot be
empirically verified, it is probably true that given the salary structure and the kind of
education and occupation of the employees, the family size on an average for these
employees is lower than the national average. Also, the “family floater” option is only
available in the case of Group insurance, and it is probably ensuring that insured employees
are able to cover most of their family members. This implies that there is a much greater
scope of expanding insurance in the individual category relative to the category “Group”.

19
Another point to note here is that the age pyramid presented before indicated that individuals
are on an average buying insurance at a much later stage in life, unlike individuals who are
being covered under Group policies. This together with a lower family size in case of
Individual policies indicate a general tendency to go in for insurance only when the health
risks to self are becoming more clear. This may be rational behaviour on the part of the
individuals, but there can be incentives built in the premium structure for earlier insurance
and family coverage, that can attract younger individuals and their families.

The table shows that in case of the Individual policies, the households are paying a total
premium of Rs. 3164 on an average annually, and insuring on an average Rs 2.07 lakhs.
These numbers are Rs. 3194 and Rs. 5.1 respectively for Group policies. Another way of
looking at it is not by households, but by individuals. Per capita premium is Rs. 1282 for
category “Individual” and Rs. 1150 for “Group”. The NSS statistics above indicated that the
per capita household expenditure on acute illnesses is about Rs. 3200, which means that on
an average in the system individuals are saving Rs. 1918 by taking insurance. This picture is
going to be clearer when we look at average claims. Of course, the actual individual
calculations of risks and benefits are obviously done differently, but taking a macro
perspective, it seems clear that there are benefits of being insured.

It is interesting to note that the sum insured is much greater for Group policies than
Individual policies, though the per capita premiums are lower. This indicates the benefits of
group pooling which is enabling the per capita premiums to be lower, and which is being
somewhat lost to the individual householders who are going in for health insurance. From
the supply side, there is another practical reason why the group health premiums are lower
than individual premiums. In India, the non-health insurance businesses like fire, is called
“tariff” business, i.e. the Tariff Advisory Committee lays down the tariff rates for some of
these general insurance products, and these are the major sources of profits for the insurance
companies. In order to attract private sector companies to give them business in these general
insurance products, insurance companies often offer health insurance group policies at
attractive terms (lower premiums) as “accommodation” business (Kalyani 2004; Segal 2004).
This of course is not an option available to individual policyholders, who therefore lose out
on both counts – lack of pooling and non-market related reasons of lowered premiums.

20
Looking at it from the point of view of claims, Table 5 indicates the average claim and grant
amounts for individual policies, for only completed policies. This is not presented for the
Group policies because of huge selection bias problems that occurred due to primarily
elimination of errors in the dataset.

Table 5: Claims, grants and premiums in Mediclaim

HH Individual
Average claim amount 34981.65 13148.03
Average grant amount 29116 10929
Average per capita premium for completed policies 2842 1195
Ratio of claim amount to premium 129
Ratio of grant amount to premium 86
Rejection Ratio 33

As can be seen, the average claim amount is Rs. 13,148 for individuals and Rs. 34,981 for
households. The claims amounts are, however, what the policyholder puts in; for example,
for the Individual policies the insurance companies on an average grant Rs. 10,929 - a 17
percent reduction. In terms of numbers, 12 percent of the individuals put in claims and 9
percent were found eligible for reimbursement. The rejection rate of 33 percent (the
percentage of claims that were rejected out of total claims) is quite moderate and if compared
to other insurance schemes seems reasonable, as will be discussed below.

How do these numbers differ across gender? The NSS data reveals that on an average female
expenditure on acute illness is 10 percent less than the expenditure incurred by males. This
most probably does not indicate a true difference in morbidity-related expenditure, but a
gender difference in health-seeking behaviour. It is likely to be true given the status of
women in India that lack of health coverage is likely to affect the health seeking behaviour of
women more than men. To that extent, greater efforts need to be made to include women in
health coverage. The per capita premiums could not be calculated by gender in the Individual
data since the premiums are consolidated for the family. However, we can look at the claims
and grants data by gender to explore whether there are any differences.

Table 6 indicates the age and gender distribution of individuals in the sample, and those who
claimed. The rejection rate – taking into account grant amount – has also been calculated by
gender.

21
The table indicates that on an average, there are 10 years between the time of taking policy
and putting in claims, for both the genders. The average age of insured individuals and those
who put in claims do not differ much between males and females.

Table 6: Gender and age in relation to claims and grants

Mean Age
All individuals Individuals with Grant Claim Rejection
Gender claims amount amount rate

Male 37 48 35585427 56201187 37%

Female 36 46 30012501 41817408 28%
All 37 47 65597928 98018594 33%

As for the rejection rate, there is in fact a lower rejection rate for females than for males,
indicating no particular tilt against women, as may be assumed (52 percent of males and 48
percent of females in the sample had put in a claim).

The average premium for completed policies is Rs. 1195, compared to the average claim of
Rs. 13148 for individual policies. The Third Party Administrators (TPAs) are paid 5.5 percent
by the insurance companies to handle the insurance business; if this cost is deducted from the
premiums, and an additional 10 percent is further deducted as administrative and handling
costs for the insurance company, it can be shown that the health business can still earn about
2-3 percent profits (as a percentage of total premiums). The fact that the ‘grant amount to
premium ratio’ is 86 percent also bears this out.

It would be interesting to compare these results with results from a few major partnership
based scheme. In Table 7 we look at two community health insurance schemes, SEWA and
BAIF, both of which are being run in professional partnerships with insurance companies. In
addition, we also look at the schemes initiated by Jammu and Kashmir government for its
employees, and is essentially offering a tailor-made group Mediclaim scheme offered by
NIC.

22
 Table 7: Premium, claims and grants from other schemes
SEWA6 J & K govt. employee BAIF scheme7
(1994-2000) group mediclaim (2003-04)
(2003-04)
Volume 228572 51617 909
Per Capita premium 30 2034 178
Per Capita claim amount 2037 43772 2306
% Putting in claim 0.8% 2.3% 7.2%
PC grant 1016 37416 2245.
Ratio of claim amount to premium 57% 51% 94%
Ratio of grant amount to premium 25% 28% 86%
Rejection Ratio 55% 46% 9%

The table indicates that the per capita premium is as low as Rs. 30 in SEWA and as high as
Rs. 2,034 for J & K scheme. The total volume covered differs across the schemes, but it is
clear that a very low premium is able to attract large volume of business. While the per
capita claim figures are not very revealing by themselves due to the different designs of the
schemes, percentage of policyholders putting in a claim ranges between about 1 percent to 7
percent, which is close to the numbers indicated by the Mediclaim data. It can safely be
assumed that less than 10 percent of policyholders will put in claims at any given period.

In the case of Mediclaim data of NIC, while the claims-to-premium ratio is about 129, the
grants-to-premium ratio is 86 percent. This ratio is much less for SEWA and J&K policy, but
very similar for BAIF. The rejection ratio is also quite high for the first two schemes,
whereas for NIC it is much less at 33 percent. These different numbers indicate that there are
several scenarios possible with insurance, but also reflect the positive side of Mediclaim,
which is that it is able to meet the demands for claims for a majority of its policyholders.
However, it should be kept in mind here that while the details of the SEWA scheme is
available over the time, the other two scheme are recent initiatives. It is essential to document
such recent innovations on a continued basis to enable empirical analysis over time.

What do these various strands of results indicate?

o Firstly, the NSS data revealed an annual individual expenditure of about Rs. 3200.
Given that the premiums are much lower than these, it makes sense for households to
go in for insurance.

6
Source: Ranson, 2002
7 Source: ‘For our own health’, BAIF ‘Experiment’ In Basic Health Programme, Maharashtra, presentation by
Dr. S B Khadilkar, BAIF, Pune

23
 o From the perspective of the insurance company, it does not seen as though the health
insurance business is a loss-making one; in fact, it is quite clear that if the volume of
business is increased, the total profits could be substantial.
o The age and gender structure, as well as the size of the families covered indicate that
there is a huge potential to expand the health insurance business in India, especially
among householders.
o Results from various partnership indicate that such initiatives are able to meet the
demand for claims of the insured while not being loss making from the insurers’
perspective.

This underutilized potential and scope for a win-win situation from both the perspective of
the policyholder and insurance company brings home another point: can the government use
this potential in any way to encourage further expansion of voluntary insurance, and if yes,
what kind of initiatives can it undertake?

It has been argued elsewhere (Gupta and Trivedi, 2004) that there are many ways that the
government can promote increased coverage in India. One key method is to form productive
partnerships between insurance companies, NGOs and the government, whether local, state
or central. While it is clear that there are greater incentives for group insurance, from the
demand side, it leaves out those outside this kind of formal sector employment. It also leaves
out those not working, students, the elderly etc. The aim should be to cover entire
communities so that risk and income pooling is maximum. Since social health insurance is
limited by the extent of organized sector employment, and community health insurance
without outside support has problems of sustainability, using the potential of voluntary health
insurance may be one of the few ways forward. To do this, it is important that a few key
stakeholders form productive partnerships.

There are already examples of some prominent partnerships that are now being discussed as
possible models of replicable schemes. These include NGOs like Karuna Trust - Karnataka,
SEWA - Gujarat, Student’s Health Home – Kolkata, Seba Hospital – Kolkata, Rag Picker’s
Scheme - Pune. There are other such partnerships as well, and the important point to note is
that often these partnerships are beyond merely “public-private” but can be termed “private-
private” or “public-public”, depending on who the stakeholders are. For example, SEWA is
collaborating with ICICI – a private sector insurance company – to extend insurance to

24
women. The Rag Pickers’ scheme is a collaboration between Pune Municipal Corporation
and New India Assurance Company, a public sector company. . It is imperative for the
policymakers to focus attention on these and other not-so-prominent success cases from the
point of view of replicability and scalability so that greater coverage can become a reality
rather than a moving target. From the demand side, a stepped up effort at IEC promoting the
usefulness of health insurance is required, and once possible initiatives are charted out, these
need to be widely publicized to achieve the desirable results.

VII. Summary and Conclusions

The paper looked at the growth of voluntary insurance in India, and used the Mediclaim data
of the National Insurance Company to arrive at some key conclusions:
o Health coverage is still restricted to about 10 percent of the population in India, and
there are limits to expansion of Social Health Insurance, social security based health
coverage, and stand-alone Community Health Insurance.
o Extending health cover to the entire population is one of the major ways of achieving
the Health for All objective, because it removes an important barrier to health seeking
behaviour.
o The growth in voluntary health insurance has been significant over the last several
years, and it is clear that the potential for growth in health insurance is immense.
o The expansion has been significant in both the public and private sector insurance
companies, but the private sector growth rates have been much higher. However, as
for market share, the four public sector companies still corner the greater part of the
health business.
o However, health business is still a small part of the total non-life insurance business in
India.
o The Mediclaim data reveals that the bulk of the policyholders are in the age range of
40-59, which indicates both a likely adverse selection problem from the insurance
companies’ perspective and an inadequate demand for insurance from the younger
age cohorts.
o The age distribution differs across Individual and Group policies significantly, with
the Individual policies being much more older-cohort based than the Group policies,
where the age distribution is more or less uniform across 20-29, 30-39 and 40-49 age

25
 categories, indicating that the Group policies are being able to take advantage of
pooling across risk and income categories, as is desirable.
o The gender distribution indicates that females are probably still passive recipients of
insurance, being covered mostly through their husbands. This phenomenon is much
less visible in case of Group policies, as is expected.
o The data revealed that on an average a much lower household size is operational
within policyholders than in the population. Slightly less than 3 members of a
household are being covered by insurance on an average, compared to a household
size of greater than 5 in India. The average size for Group policy is in fact slightly
lower compared to that for Individual policy.
o Per capita premium and sum insured are slightly lower in Individual compared to
Group policies.
o Per capita individual premium for Individual policies is Rs. 1282 per annum; the
National Sample Survey data indicates that the annual expenditure in the same year
could be Rs. 3200 per capita, indicating a substantial saving by individuals (and
therefore households) if they go in for health insurance.
o An analysis of the claims and grants data indicated that the grant to premium ratio is
around 86 percent, indicating reasonable profit to the insurance company from health
insurance.

What are the policy implications of these sets of results? The main result seems to be that
while health insurance is growing significantly, it is still much below the potential market it
can capture. While the individuals are clearly going to benefit from buying insurance, it is
still not a spontaneous demand, and there are hardly any incentives built into the current
product that will make it attractive to younger people, the elderly or the women, It is clear
that individual householders do not see much merit in buying health insurance, and do so
only when they perceive tangible health risks.

The insurance companies clearly stand to gain by expanding the market, and can offer even
lower premiums if they are able to attract more households and individuals to the market.
Tailor made schemes with specific incentives to attract various segments of the population is
clearly indicated as a business strategy, with benefits that can be distributed to the
policyholders by way of lower premiums.

26
This strategy is also useful viewed from the perspective of the country, where lack of
sufficient health coverage seems to be hindering the achievement of the Health for All
objective.

One of the main expectations of the opening of the insurance sector in India was that health
insurance could grow and become a viable option for a majority of Indians. However, this
has not happened. It seems that the initial momentum with the introduction of TPAs has been
lost, and health insurance business has again taken a back seat. The share of health in total
non-life business was about 5 percent in 2000-01 and is at present only about 10 percent,
showing a very modest growth. This is unfortunate indeed, and reflects on the lack of policy
coherence around health insurance issues in India. One of the instruments that the IRDA can
actually use is mandated coverage, wherein the companies can be directed to undertake a
minimum amount of health business. For example, the IRDA could also think in terms of the
approach adopted in the case of rural/ social sector insurance businesses, wherein minimum
business targets have to be achieved (Gupta et al 2004). Similarly, it can also mandate that a
certain percentage of total business be health, or even better, state the allocation of the
mandated health insurance across different sectors (rural/urban). The Universal Health
Scheme was a limited attempt towards this, though without any directives on quantity or
volume. However, this scheme has clearly not taken off. It is contended that if the product is
consumer friendly in other aspects, as well as low cost, it is bound to attract business. A
reasonable, well thought out product can then be developed and marketed through insurance
companies, which can happen with some initial compulsory initiatives on the part of the
IRDA/government, but will bring with it some necessary innovations.

One such innovation, which can exploit this huge untapped potential, is productive
partnerships among insurance companies, community based organisations and different levels
of government. There are currently several such instances of partnerships, where the main
beneficiaries are communities, who get low cost health insurance. However, such
partnerships need to be studied carefully, from the perspective of costing and subsidies
involved, as well as from the operational and financial feasibility angle.

Another point that may be critical in the scaling up of such innovative products is the reach of
insurance companies in rural and other remote areas. Whereas the life insurance products are
different from health insurance products, the Life Insurance Corporation (LIC) does have a

27
tremendous network that can be used to distribute newer and better health insurance products
as well. At present, LIC offers Critical Illness policies for a few major illnesses. LIC can
however, also be mandated to sell a certain volume of health insurance product as well.
Needless to say, this and other such newer initiatives would require IRDA to take another
look at its current rules and regulations governing insurance business in India.

Finally, an important point to note here is the urgent need for standardized database on
insurance in India, across insurance companies, which should include proper documentation
of all the partnerships between insurance companies and NGOs/CBOs/state governments.
IRDA should proactively set up processes in place, so that it may act as a clearing-house for
such information. Currently, state level information on collaborative schemes does not
always percolate down even to the head offices of insurance companies. The insurance
companies also gain by being able to expand volume, and the policymakers are also able to
move towards their goal of greater coverage. Till the time the country decides to scale up
social security or some form of social health insurance, it is imperative for it to explore
alternative channels; the presence and growth of the voluntary health insurance sector offers a
window of opportunity to do so, even the right moves are made at the right time.

28
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