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What Could Be In Store For Non-Life Insurers If Life Peers Offer Health Insurance

Life insurers are allowed to offer health benefit and lumpsum schemes, but not indemnity products.

<div class="paragraphs"><p>Insurance policy form. (Photo: Unsplash)</p></div>
Insurance policy form. (Photo: Unsplash)

A committee set up by the insurance regulator discussed a proposal to allow life insurers to sell health insurance for hospital expenses, according to a senior official.

The panel or the regulator has not set a timeline to the consider the proposal that will allow life insurers to offer health indemnity plans, said the official quoted above, speaking on the condition of anonymity as details are not public yet. It may not be a priority since multiple issues are being discussed, he said.

According to a senior member with Life Insurance Council, who also spoke on the condition of anonymity, the proposal was floated after the first wave of Covid-19. The member didn't want to be identified as details are not public yet.

It's part of new Chairman Debasish Panda's focus on expediting processes. Panda, who took office two months ago, wants to speed up the work to simplify regulations and capital requirements, and introduce new products to widen insurance penetration.

According to existing regulations, life insurance companies are permitted to offer health benefit/lumpsum schemes but not indemnity products, according to a Kotak Institutional Equities report published on Wednesday.

Health indemnity covers mediclaim plans where the insurance company foots the hospital treatment bill. A health benefit is when an insurer (life, general or standalone health) pays an amount in case of a particular disease or hospitalisation. Like a Rs 10-lakh payout for a critical illness like cancer or Rs 10,000 a day if the policyholder is hospitalised.

While the proposal may appear to be a blow for general and standalone health insurers that sell health indemnity products, it may not prove quite so disruptive, Avinash Singh, insurance analyst at Emkay Global, told BQ Prime.

"Globally health indemnity products are offered by all kinds of insurers (life, general and health). Hence, the regulator may eventually go the same way with Indian life insurers,” Singh said.

The overall process may be long-drawn and take a few years, with life insurers required to design new products, create teams and train agents to sell these products, he said. “By then, the standalone health insurers will have a reasonable growth runway to be able to stand on their feet."

The Kotak report highlighted the challenge and potential this move could offer: "Health is a complex and high engagement product. It may be challenging for life insurance companies to scale up health in the immediate term; standalone health insurers will likely continue to gain market share in the interim.”

According to Singh, while the "customer connect" of life insurers is being touted as a concern for health insurance providers, goodwill may actually deter customers with existing health policies from porting out or switching providers.

Standalone Health Insurers Face One Risk

Retail health insurance accounted for 45% of total health insurance premium in FY21, while group health insurance was at 48% and the balance was from "government business", the Kotak report said.

Standalone health insurers with specialised focus on retail health are gaining traction, even as general insurers prefer to stick to the group health business, according to Kotak Institutional Equities.

"Sales engagement required for retail health will likely remain high and this segment may remain dominated by standalone health insurance players in the medium term," the brokerage said. "Several non-life (general insurance) companies such as Bajaj Allianz and ICICI Lombard have decided to step up in the retail segment; however, this business is highly granular with a high gestation period."

According to Singh, even if the retail segment were impacted due to entry of life insurers, general insurers would barely suffer as most of them—except HDFC Ergo General Insurance Co.—earn just 5-7% of their revenue from this segment.

Standalone health insurers, however, may stand to lose out on their market, as around 90% revenue in case of Star Health and Allied Insurance Co., and 60-70% revenue in the case of others like Niva Bupa Health Insurance Co. comes from retail health, he said. But the impact, according to him, will be seen a couple of years away, eventually slowing their growth rate.

Private Insurers May Stay Away

Most of the major private life insurers are subsidiaries of large banks and non-banks that also have general insurance subsidiaries offering health insurance, according to the Kotak report.

ICICI Bank Ltd., HDFC Bank Ltd., State Bank of India and Kotak Mahindra Bank Ltd. have presence in both life and general insurance. Such large private insurers, Singh said, might not decide to aggressively take away business from its group companies.

The Kotak report said the “multi-line private non-life” or general insurers have been a bit cautious about the retail health segment. "We don’t expect life companies to take an aggressive stance in the immediate term."