This story is from September 12, 2018

Are you better off without a health insurance policy?

Private insurers in India have a poor record of paying up when customers need the cover, leading to a high complaints rate
Are you better off without a health insurance policy?
Key Highlights
Private insurers in India have a poor record of paying up when customers need the cover, leading to a high complaints rate

There are no penalties in the existing regulations for rejecting valid claims even when the rejections are in violation of the regulations
Individual buyers of health insurance are worst off in India, especially if they have bought it from private stand-alone health insurance companies. They have the greatest difficulty in getting the companies to pay up when they need the cover.
The Indian health insurance sector also had the highest complaints rate, according a study of the sector that compared India, Canada, Australia, UK and the US state of California, an indication of the poor quality of products and services.The study concluded that “it may be the case that with such poor levels of consumer protection, households which purchase basic financial products, like health insurance, are worse off than households which do not”.

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According to the study by the National Institute of Public Finance and Policy (NIPFP) titled Fair Play in Indian Health Insurance, the claims ratio or the amount paid to settle claims as a percentage of the total premiums collected had fallen from 67% to 58% between 2013 and 2016 for private standalone health insurers, raising consumer protection concerns. Yet, unlike in the US, a highly privatised health insurance market, where it is mandatory for insurers to refund consumers if the claims ratio is below a minimum level, no such provision exists in India. In many US states the minimum claims ratio ranges from 65% to 80%, below which insurers would have to refund consumers.
In contrast, the claims ratio of government-backed general insurance firms had gone up from 106% in 2013-14 to 117% in 2015-16, indicating either a cross-subsidy from other businesses or a business heading towards bankruptcy. The study also found that private insurers use a higher percentage (up from 10% in 2013-14 to over 12% in 2015-16) of the premium paid by consumers to pay agent commissions, while public sector insurers used just 6.8% in 2013 and now over 7% for the same.

The largest growth in the sector was in the government funded health insurance schemes (GFHIS), which went from covering 12% of the population in 2013-14 to over 20% by 2015-16. These enable the poor to use private hospitals for covered medical procedures and the insurer reimburses the private hospital.
Group health insurance, like those offered by companies to their employees, and individual insurance covered just over 4% and 2%, respectively, of the population. The authors noted that with private persons buying health insurance, and governments building state-funded schemes that use the services of private health insurance firms on a large scale, there was an urgent need to look into the quality
of these insurance policies and efficiency of the sector.
In computing complaint rates, the study only considered complaints made to adjudicators outside the company, which indicated that the company had failed to address the consumer’s grievance. Moreover, in most other countries since clinical visits, medication and some wellness care are also covered, and not just hospitalisation, there were more chances for customer dissatisfaction. Despite there being fewer encounters between consumers and insurance firms in India, as they cover only hospitalisation, and being a far less litigious country, India has the highest complaint rate. “The lack of fair play in this industry is derived from deficiencies in regulations, weak enforcement and faulty institutional design of consumer redress,” noted the study.
Insurance firms often rejected legitimate claims only to lose in dispute resolution mechanisms, like the ombudsman and consumer fora. There are no penalties in the existing regulations for rejecting valid claims even when the rejections are in violation of the regulations, the study noted, adding that firms violated regulatory requirements without any repercussions. “In multiple cases, after more than a year of dispute resolution processes, the insurer is required to pay for the insured amount and small values for litigation costs and harassment damages. Usually the costs imposed are even below the time value of the claimed amount,” the study said, noting how rejection of legitimate claims helped further insurance firms’ surplus.
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