Health Insurance

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Published in Mint on May 16 2017, Written by Kapil Mehta

A few weeks ago, the Insurance Regulatory and Development Authority of India (Irdai) released market research on the insurance industry. The study, conducted by the National Council of Applied Economic Research (NCAER), covered 30,200 households across the country. Considerable thought has gone into making sure that the sample represents the country and results can be benchmarked to a similar survey done in 2010.

The research gives us a good sense on how insurance is perceived in India. Many areas have shown progress but it is also clear that much more work remains. The regulator, government and industry have a full agenda for many more years. The research covers the entire country but I have focused on the outcome of urban India.
The awareness and understanding of life insurance has improved materially over the years. Over 83% of urban households are aware of life insurance. The highest awareness is for term insurance. This is remarkable because term insurance was introduced in a material way just over a decade ago. It is the purest and most cost-effective form of life insurance; so the high awareness is positive. The deeper understanding of life insurance comes through in the reasons for why life insurance is bought. Over 75% of insured urban people say that life insurance is meant to compensate for a loss of life. This proportion was about 51% five years ago. The number of people who believe that life insurance compensated for damage or rebuilding assets has decreased. This was a notion that is correctly being dispelled. Life insurance is now increasingly seen as a savings and protection tool.
There are some implications for policymakers. The first is that life insurance is the most significant financial planning tool for many homes. It is crucial that products are fair to buyers and customer expectations are clearly set. If this is done properly, the impact on individuals will be material. The second implication is that there is a gap between the products buyers may need and what they get. This is shown by the gap between awareness and actual sale of term insurance. Awareness of term insurance is over 50% but actual sales are in single digits for most insurers. The gap exists because distributors are not incentivized to sell it. If this anomaly were to be corrected by building new distribution channels, such as online or by allowing better long-term compensation, it is likely that term insurance sales would increase materially.
On health insurance, the survey findings are mixed. Awareness of health insurance is high at close to 70%. Although this awareness has increased by 16% over the past five years, there is poor understanding of what goes into health insurance. Fewer than 50% understood the benefits. The awareness of key health insurance clauses was poor: fewer than 17% of urban households knew about pre-existing diseases being excluded and under 12% were aware that the insurance had exclusions. Although the understanding has improved over the years, there is still a big gap in what this ought to be.
Other general insurances continue to be under-penetrated and have considerable scope for improvement. Customers are not satisfied with their general insurances. Over half the sample cited high premium and cumbersome processes as issues. Homes are generally the most expensive asset of any household. Yet the awareness of home insurance is less than 40% of urban households.
The ability of the government to scale up stands out. The Pradhan Mantri Jeevan Jyoti Bima Yojana, a term plan, and the Pradhan Mantri Suraksha Bima Yojana, a personal accident insurance, were launched just two years ago. Today they have an urban household awareness of over 70% and 60%, respectively. The impact of the government on health insurance is impressive. Another instance of this impact is crop insurance. One of the main drivers of the general insurance industry’s growth last year was crop insurance promoted by the government. This was a substantial Rs20,000 crore premium, about 16% of the entire industry’s sales. I was disappointed to see the poor awareness of the insurance ombudsman; just about 6% of urban households know of it. This is an area that needs focus. Fewer than 5% of complainants were routed through the ombudsman; the consumer courts were approached twice as many times. Currently, the only recourse buyers have outside of the insurer are the ombudsman and courts. If they are not aware of these options then buyers may feel stifled when they have an unresolved complaint.
For the industry, the business opportunity stands out. Awareness levels of insurance and the need is significantly higher than actual penetration. The challenge is to systematically identify barriers to penetration and push forward. The answers are likely to be in product design and cost-effective distribution partnerships.
As in any industry, data can be arranged to justify opinion. That’s where company- or association-sponsored research often goes wrong. However, this NCAER report is meaningful because it is sponsored by the regulator, conducted independently and arranged in a manner that allows comparison of progress over time. The next step would be to focus regulation and the industry on issues that need improvement according to this report—a sustained focus on introducing life insurance products that meet the protection requirements of people, encouraging a deeper understanding of the features that go into health insurance, increasing awareness of home insurance and grievance redressal processes.