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Howard Bolnick, who taught insurance at the Kellogg School of Management for 13 years, was in India for a five – day executive development programme on healthcare financing and health insurance, organised by the Insurance Foundation of India (IFI). Bolnick, a past president of the US Society of Actuaries, took time to talk to Sarabjeet K Sen on how he viewed the Indian health insurance sector. Excerpts:

1) How do you see the present stage of the Indian health insurance market?

It is very much in a formative stage still. I know there have been health insurance products roughly for 20 years but still the penetration level is barely 2 per cent of the population. This is very, very low. It is somewhat stagnant and listening to the people here, it is very clear in some sense it is not functional. I think insurance companies in India have things to learn; that they must do better. There is a generally bad but improving relationship between the health providers and the insurance companies. There is a low level of awareness of health insurance among the population. It is really not the kind of situation that is ready for takeoff.

However, given that the regulatory framework is improving and that many new players including foreign companies are willing to come in, I think things are at a takeoff stage.

2) Can the penetration levels of health insurance see a dramatic change in India going forward?

You got a situation where there is 2 per cent market penetration. You will never get to 100 per cent. There are around 300-350 million people whom you could potentially sell health insurance to. I would argue to the health providers that if they cooperate with health insurance companies, the penetration can be as much as 150-200 million, which by the way will be growing. I am told there are some companies that take six months to pay claims. That’s absurd. How can you have a relationship with health providers if you are sitting on their money for so long?

There are other things that from a US perspective might look perverse. I understand, not surprisingly, when an individual goes into a hospital here, one of the first questions asked is if the person is insured or not.

That happens in the US too. But in the US context, you get a better deal than if you are not insured, but here it is a worse deal. Should that continue? No. At some point of time, there needs to be cooperation between the insurance industry and the health providers to set up a foundation to do things that makes sense to both of them.

3) Of late, there has been some debate on whether one should retain the commission structure in the insurance sector. What are your views given your US experience?

My understanding here in India is that most of the market is retail. You have to reach them not through a place of employment but you have to reach them through an intermediary. In that sense, in the retail market, intermediaries are vital. In the US, agents are generally compensated by one of two ways, depending on the situation. Sometimes it is consultancy, sometimes it’s a flat fee. But in the retail market, it is a mainly percentage of the premium. It is a balancing act but where it will end up in India, I don’t know.

4) The government here is proposing to reduce the paid-up capital requirement of standalone health insurance companies to Rs 50 crore from the present Rs 100 crore. How do you see this move?

I have heard that. Let’s put it this way. You really have to have capital in this industry, particularly when you are a nascent stage of development. I keep hearing about loss ratios of 140-150 per cent in India, which is very high. This really brings in the need of capital. What happens if you run out of capital? It is not good for the industry and not good for the policyholder if the company goes bankrupt. But bankruptcies and such types of disruptions will not help in the growth of health insurance in general. So, if I were a regulator, I would want to be careful to make sure that there is adequate capital.

5) What is the average loss ratio of health insurers in the US?

Companies are making money. Health insurance companies in the US have been one of the real darlings of Wall Street.

6) Is it because they don’t pay claims?

That’s bad. I have heard people say that. It is a political debate. There are certainly instances of it. But it is generally not true. The reason that they are so profitable is because they develop managed care techniques and have learned how to manage their business much better than what we knew as an industry 20 years ago. They have been able to reap nice profits.

7) There is a proposal to raise the foreign direct investment (FDI) cap in insurance to 49 per cent from the present 26 per cent. What are your views?

Whether foreign partners should be allowed to own a majority or not is a local issue. But it seems to me that somehow the government and the regulator should create an environment that is encouraging for the right foreign companies to come in. Now, whether that is 49 per cent, 35 per cent or 55 per cent, I don’t know. But it should be a welcoming environment, an open environment, because a lot of foreign companies have knowledge, expertise that will help the health industry to grow.


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