Opinion The risk-averse society

Take health insurance: insurers collect premiums and then keep as profit whatever they can avoid paying out. On many occasions,patients find that it is far easier to deal with their disease than with their insurers! Besides,insurers have high overheads — executive salaries,advertising,marketing incentives,etc,which is eventually billed to the buyers. Currently,buyers cannot change their service provider seamlessly if they have had a terrible experience while reimbursing claims or if they think that they are not getting value for money.

Health insurance in India is distant,complicated and opaque right now. There are more than 20 non-life insurers in the country,with their own services and seemingly impressive “plans”. The common man has difficulty understanding them and often has to rely on the insurance salesperson. The industry has been moving towards standardisation by increasing the scope and complexity of differentiated insurance products,similar to the way banks used to structure complex financial instruments.

The proposed regulation seems to be a timely step in the right direction. The idea of portability is simple. Insurers,like other businesses,respond to incentives. If we reward insurers who provide high quality service,or punish them financially for providing less than optimal service,then they will do a better job. Portability would hit the for-profit insurance businesses where it hurts the most.

This self-correction mechanism is important because as the Indian economy grows,this industry would be in a strong growth path as well. During the April-July period this year,the industry underwrote a gross premium of around Rs 16,000 crore,22 per cent higher than the Rs 13,000 crore in the corresponding period last year. It is important to enforce strict regulation during the growth phase than try to rein them in after they have become unwieldy,as in some countries.

Portability would enforce standardisation in the service offerings of insurers. It would mean rationalisation of the insurance fee,consistent terms and conditions,and uniformity in claim procedures to make it easy for users. Portability would lower claims processing costs too. For instance,after portability was introduced in Germany,the cost of insurance claims processing came down from an average of 45 euros to 1 euro. In India,much of the claims processing is non-standardised and needs to be done manually by insurance executives,which is costly,laborious and slow. As the industry expands,portability would ensure that insurance buyers and hospitals would have to deal with one standard procedure which can be largely automated,to make it prompt and efficient.

Since the insurance products offered here are replicas of those offered in the US two decades back,it would be useful to keep in perspective the horrible mess that insurance providers have created there. The disarray in which the US healthcare system finds itself today,is largely attributable to its insurance industry. They have promised to deliver better service and reduce premiums for the last 15 years but have done precious little. While announcing healthcare reforms,President Obama announced his intention to “make the healthcare market more competitive,and keep the insurance companies honest”. Those last five words are crucial in our context because past experience shows that insurance companies will do nothing to reform themselves unless forced to do so. Portability would provide the paying public a real and meaningful public option to keep the insurance companies honest. It would make sure that this social good offered by for-profit firms is competitive,cost effective and easy to switch.

The writer,formerly of JP Morgan capital markets,is CEO,Quantumphinance express@expressindia.com