Health insurance market in India regarding the gross premium collected during the year 2015-16 stood at Rs 24399 crore ($3.6 billion). The government sponsored insurance programme contributed about 10 percent of this premium, and 90 percent was the voluntary group and individual health insurance plans.
The number of people covered during the same year has been 35.90 crores of which 27.33 crores are covered by government insurance schemes which include RSBY and other state government run insurance schemes. Private voluntary insurance covers about 8.57 crore individuals.
The average unit premium of three broad classes of insurance presents an interesting picture. The per capita insurance premium is highest in individual voluntary schemes at Rs 3607 and group premium is about 60 percent of the individual premium. The differential between government sponsored insurance, and private individual voluntary schemes is to the extent of 40 times (see Figure below for comparison). The membership differential between these two schemes is about ten times.
At the theoretical level, the dynamics of health insurance markets is well known. The insurers operate in situations where demand-supply conditions do not adequately reflect the real preferences, and because of information asymmetry, the market will always be in flux. The two key risks viz., adverse selection and moral hazard problems influence the pricing and performance of insurance schemes. Insurer's design of plans include conditionality to protect themselves from such hazards. The co-payment, deductibles, and exclusion clauses are some of the instruments used by the insurer.
Among other measures, the group insurance schemes are expected to have significant economies of scale and writing such policies may reduce the adverse selection problem by improving the risk pooling. One of the measures to monitor the sustainability of insurance pool is the incurred claim ratio, which is measured by dividing the net incurred claims by net premium collected. This ratio across the three segments of insurance present an interesting read.
The claim ratio of group plans across all three types of insurers are higher. For public sector insurer the claim ration is 123 percent, where as for private and standalone insurers it is 98 percent and 87 percent respectively. The expected claims in group plan should have been lowest. This raises some interesting research questions:
The number of people covered during the same year has been 35.90 crores of which 27.33 crores are covered by government insurance schemes which include RSBY and other state government run insurance schemes. Private voluntary insurance covers about 8.57 crore individuals.
The average unit premium of three broad classes of insurance presents an interesting picture. The per capita insurance premium is highest in individual voluntary schemes at Rs 3607 and group premium is about 60 percent of the individual premium. The differential between government sponsored insurance, and private individual voluntary schemes is to the extent of 40 times (see Figure below for comparison). The membership differential between these two schemes is about ten times.
Per Capita Insurance Premium (INR)
Data Source: IRDA Annual Report 2015-16
At the theoretical level, the dynamics of health insurance markets is well known. The insurers operate in situations where demand-supply conditions do not adequately reflect the real preferences, and because of information asymmetry, the market will always be in flux. The two key risks viz., adverse selection and moral hazard problems influence the pricing and performance of insurance schemes. Insurer's design of plans include conditionality to protect themselves from such hazards. The co-payment, deductibles, and exclusion clauses are some of the instruments used by the insurer.
Among other measures, the group insurance schemes are expected to have significant economies of scale and writing such policies may reduce the adverse selection problem by improving the risk pooling. One of the measures to monitor the sustainability of insurance pool is the incurred claim ratio, which is measured by dividing the net incurred claims by net premium collected. This ratio across the three segments of insurance present an interesting read.
Claim Ratio Across Different Health Insurance Segments for 2015-16
Data Source: IRDA Annual Report 2015-16
The claim ratio of group plans across all three types of insurers are higher. For public sector insurer the claim ration is 123 percent, where as for private and standalone insurers it is 98 percent and 87 percent respectively. The expected claims in group plan should have been lowest. This raises some interesting research questions:
- Do we lack appropriate risk rating in group health insurance plans?
- Are market failures in group-plans more severe than individual markets?
- Do good corporates retain employee health risk and do not buy insurance?
- Is there an overselling of group plans to meet the revenue target of the insurer as the reason and insurers take more risks?
- Are the group plans more liberal in using the preferred provider and receive less scrutiny of claim authorization and claim processing?
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