COMPETITIVE STUDY OF HEALTH

INSURANCE SCHEMES OFFERED BY

GENERAL INSURANCE COMPANIES IN
INDIA

SUBMITTED BY:

VIBHA NIGAM

MBA (G),SEM-IV
Enrollment no-A700

UNDER GUIDENCE OF:

-------------------------
Designation
ABS, Lucknow

DISSERTATION REPORT IN PARTIAL FULFILLMENT OF THE AWARD OF FULL TIME

MASTERS IN BUSINESS ADMINISTRATION (2009-11))

AMITY BUSINESS SCHOOL

AMITY UNIVERSITY UTTAR PRADESH LUCKNOW

1
 Declaration

I HEREBY STATE THAT THIS PROJECT, SUBMITTED IN PARTIAL

FULFILLMENT FOR THE REQUIREMENTS OF MBA(G) PROGRAM OF
THE AMITY UNIVERSITY, LUCKNOW IS AN ORIGINAL RESEARCH
WORK CARRIED OUT BY ME UNDER THE GUIDANCE AND
SUPERVISION OF Mr. NIMISH GUPTA, AMITY BUSINESS SCHOOL
,LUCKNOW AND THE THESIS OR ANY PART HAS NOT BEEN
PREVIOUSLY SUBMITTED.

Signature Signature

Name_______________ Name_____________
(Student) (Faculty
Guide)

2
 PREFACE

“Experience is the best teacher.” This saying is very well applicable in everyone’s life.
Therefore as a student of management it must apply to me also. Then the question arises
that from where we can get this experience. Obviously we must undergo practical
Training. To serve this purpose I had undergone dissertation and as an outcome I have
prepared this project report.

This project report on “competitive study of health insurance schemes offered by general
insurance companies in India” as per syllabus prescribed by Amity University for MBA
students. The experience of preparing this dissertation will be useful in my future and
findings of this particular project will be helpful in understanding the various schemes of
health insurance provided by different banks in India.

VIBHA NIGAM
MBA (G),SEM IV
Enrollment no.

3
 ACKNOWLEDGEMENT

In preparing this dissertation report a considerable amount of thinking and informational

inputs from various sources were involved. I express my deep sense of gratitude to
--------------------,my faculity guide for his excellent spirit, effective guidance,
encouragement and constant criticism, which gave me the confidence to complete the
term paper effectively. In spite of having a very busy schedule, he made sure in every
way that I acquire the best possible exposure and knowledge during my preparation of
research report under his guidance. He gave all the time and attention, which I needed to
complete my research and compile my term paper in as much orderly way as possible.
I am also thankful to all those people, who are directly or indirectly
associated with the timely completion my term paper, without which I otherwise would
not have able to complete my dissertation report.

VIBHA NIGAM
MBA (G),SEM IV
Enrollment no.

4
 Table of contents

CHAPTER I: INTRODUCTION

1.1. Background

1.2. Significance of the study

1.3. Scope and objectives

1.4. Limitations

CHAPTER II: PROFILE OF THE COMPANY

2.1. INSURANCE IN INDIA

2.11. HISTORY OF INSURANCE IN INDIA

2.12. MILESTONES IN INDIAN LIFE INSURANCE BUSINESS

2.13. IMPORTANT MILESTONES IN THE INDIAN INSURANCE BUSINESS

2.14. ECONOMIC POLICY CONTEXT AND IMPERATIVES OF LIBERALISATION

OF INSURANCE SECTOR

2.15. LIST OF INSURANCE COMPANIES IN INDIA

2.16. BASIC FUNCTIONS OF INSURANCE

5
2.18. TOP INSURANCE COMPANIES IN INDIA

2.2. HEALTH INSURANCE IN INDIA

2.21.HEALTH INSURANCE IN INDIA: CURRENT SCENARIO

2.22. CONSUMER AND SOCIAL PERSPECTIVE ON HEALTH INSURENCE

2.23. IMPACT OF HEALTH INSURANCE ON STRUCTURE AND QUALITY OF

PRIVATE PROVISION

2.24. ROLE OF REGULATORS

2.25. VARIOUS HEALTH INSURANCE PRODUCTS AVAILABLE IN INDIA

2.26.GENERAL INSURANCE VS. LIFE INSURANCE

2.27. HEALTH INSURANCE FOR SENIOR CITIZENS

2.28. MODELS OF LONG TERM CARE IN OTHER COUNTRIES

1) GERMANY
2) JAPAN
3) UNITED STATES
4) UNITED KINGDOM

2.29.IMPLICATIONS OF PRIVATIZATION ON HEALTH INSURANCE

CHAPTER III: RESEARCH METHODOLOGY

3.1. REASEARCH PROCESS

3.2. LITRATURE STUDY

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3.3. HOW TO FIND RIGHT LITRATURE
3.4. SOURCES OF DATA

CHAPTER IV: ANALYSIS OF DATA

4.1. HEALTH INSURANCE IN INDIA OPPOURTUNITY,CHALLENGES AND

CONCERNS

4.2. VOLUNTARY HEALTH SCHEMES OR PRIVATE –FOR-PROFIT SCHEME

4.3. INSURANCE OFFERED BY NGO’S / COMMUNITY-BASED HEALTH

INSURANCE

4.4. SOCIAL INSURANCE OR MANDATORY HEALTH INSURANCE SCHEMES

OR GOVERNMENT RUN SCHEMES (namely the ESIS, CGHS)

4.5. HEALTH INSURANCE INITIATIVES BY STATE GOVERNMENTS

CHAPTER IV: SUMMARY AND CONCLUSION

CHAPTER V: SUGGESTIONS AND RECCOMENDATIONS

BIBILIOGRAPHY

7
CHAPTER I: INTRODUCTION

1.1. Background

1.2. Scope of the study

1.3. Research objectives

1.4. Limitations

8
1.1. Background
Over the last 50 years India has achieved a lot in terms of health improvement. But still
India is way behind many fast developing countries such as China, Vietnam and Sri
Lanka in health indicators (Satia et al 1999). In case of government funded health care
system, the quality and access of services has always remained major concern. A very
rapidly growing private health market has developed in India. This private sector bridges
most of the gaps between what government offers and what people need. However, with
proliferation of various health care technologies and general price rise, the cost of care
has also become very expensive and unaffordable to large segment of population. The
government and people have started exploring various health financing options to
manage problems arising out of growing set of complexities of private sector growth,
increasing cost of care and changing epidemiological pattern of diseases.

The new economic policy and liberalization process followed by the Government of
India since 1991 paved the way for privatization of insurance sector in the country.
Health insurance, which remained highly underdeveloped and a less significant segment
of the product portfolios of the nationalized insurance companies in India, is now poised
for a fundamental change in its approach and management. The Insurance Regulatory
and Development Authority (IRDA) Bill, recently passed in the Indian Parliament, is
important beginning of changes having significant implications for the health sector.

The privatization of insurance and constitution IRDA envisage to improve the

performance of the state insurance sector in the country by increasing benefits from
competition in terms of lowered costs and increased level of consumer satisfaction.
However, the implications of the entry of private insurance companies in health sector
are not very clear. The recent policy changes will have been far reaching and would have
major implications for the growth and development of the health sector. There are several

9
contentious issues pertaining to development in this sector and these need critical
examination. These also highlight the critical need for policy formulation and
assessment. Unless privatization and development of health insurance is managed well it
may have negative impact of health care especially to a large segment of population in
the country. If it is well managed then it can improve access to care and health status in
the country very rapidly.

Health insurance as it is different from other segments of insurance business is more

complex because of serious conflicts arising out of adverse selection, moral hazard, and
information gap problems. For example, experiences from other countries suggest that
the entry of private firms into the health insurance sector, if not properly regulated, does
have adverse consequences for the costs of care, equity, consumer satisfaction, fraud and
ethical standards. The IRDA would have a significant role in the regulation of this sector
and responsibility to minimise the unintended consequences of this change.

Health sector policy formulation, assessment and implementation is an extremely

complex task especially in a changing epidemiological, institutional, technological, and
political scenario. Further, given the institutional complexity of our health sector
programmes and the pluralistic character of health care providers, health sector reform
strategies in the context of health insurance that have evolved elsewhere may have very
little suitability to our country situation. Proper understanding of the Indian health
situation and application of the principles of insurance keeping in view the social realities
and national objective are important.

10
1.2. Significance of the study

This dissertation presents review of health insurance situation in India - the opportunities
it provides, the challenges it faces and the concerns it raises. A discussion of the
implications of privatization of insurance on health sector from various perspectives and
how it will shape the character of our health care system is also attempted. The paper
following areas:

Economic policy context

Health financing in India
Health insurance scenario in India
Health insurance for the poor
Consumer perspective on health insurance
Models of health insurance in other countries
Competitive analysis of health insurance sector in India

1.3. Research objectives

 To understand the position of health insurance in India

 To understand the different schemes of health insurance provided by

different companies.

 To find out the future of Insurance sector in India

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 1.4. Limitations

1. The study is confined to limited period.

2. Accuracy of the study is purely based on the secondary data.

3. The analysis and conclusion made by me as per my limited understanding and

there may be something variation in the actual situation.

12
 CHAPTER II: PROFILE OF THE COMPANY

2.1. HISTORY
OF
INSURANCE IN
INDIA
13
 2.11. HISTORY OF INSURANCE IN INDIA

In India, insurance has a deep-rooted history. It finds mention in the writings of Manu (
Manusmrithi ), Yagnavalkya ( Dharmasastra ) and Kautilya ( Arthasastra ). The writings
talk in terms of pooling of resources that could be re-distributed in times of calamities
such as fire, floods, epidemics and famine. This was probably a pre-cursor to modern day
insurance. Ancient Indian history has preserved the earliest traces of insurance in the
form of marine trade loans and carriers’ contracts. Insurance in India has evolved over
time heavily drawing from other countries, England in particular.

1818 saw the advent of life insurance business in India with the establishment of the
Oriental Life Insurance Company in Calcutta. This Company however failed in 1834. In
1829, the Madras Equitable had begun transacting life insurance business in the Madras
Presidency. 1870 saw the enactment of the British Insurance Act and in the last three
decades of the nineteenth century, the Bombay Mutual (1871), Oriental (1874) and
Empire of India (1897) were started in the Bombay Residency. This era, however, was
dominated by foreign insurance offices which did good business in India, namely Albert
Life Assurance, Royal Insurance, Liverpool and London Globe Insurance and the Indian
offices were up for hard competition from the foreign companies.

In 1914, the Government of India started publishing returns of Insurance Companies in

India. The Indian Life Assurance Companies Act, 1912 was the first statutory measure to
regulate life business. In 1928, the Indian Insurance Companies Act was enacted to
enable the Government to collect statistical information about both life and non-life
business transacted in India by Indian and foreign insurers including provident insurance
societies. In 1938, with a view to protecting the interest of the Insurance public, the

14
earlier legislation was consolidated and amended by the Insurance Act, 1938 with
comprehensive provisions for effective control over the activities of insurers.

The Insurance Amendment Act of 1950 abolished Principal Agencies. However, there
were a large number of insurance companies and the level of competition was high.
There were also allegations of unfair trade practices. The Government of India, therefore,
decided to nationalize insurance business.

An Ordinance was issued on 19th January, 1956 nationalising the Life Insurance sector
and Life Insurance Corporation came into existence in the same year. The LIC absorbed
154 Indian, 16 non-Indian insurers as also 75 provident societies—245 Indian and
foreign insurers in all. The LIC had monopoly till the late 90s when the Insurance sector
was reopened to the private sector.

The history of general insurance dates back to the Industrial Revolution in the west and
the consequent growth of sea-faring trade and commerce in the 17th century. It came to
India as a legacy of British occupation. General Insurance in India has its roots in the
establishment of Triton Insurance Company Ltd., in the year 1850 in Calcutta by the
British. In 1907, the Indian Mercantile Insurance Ltd, was set up. This was the first
company to transact all classes of general insurance business.

1957 saw the formation of the General Insurance Council, a wing of the Insurance
Associaton of India. The General Insurance Council framed a code of conduct for
ensuring fair conduct and sound business practices.

In 1968, the Insurance Act was amended to regulate investments and set minimum
solvency margins. The Tariff Advisory Committee was also set up then.

In 1972 with the passing of the General Insurance Business (Nationalisation) Act, general
insurance business was nationalized with effect from 1st January, 1973. 107 insurers were
amalgamated and grouped into four companies, namely National Insurance Company

15
Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd and
the United India Insurance Company Ltd. The General Insurance Corporation of India
was incorporated as a company in 1971 and it commence business on January 1sst 1973.

This millennium has seen insurance come a full circle in a journey extending to nearly
200 years. The process of re-opening of the sector had begun in the early 1990s and the
last decade and more has seen it been opened up substantially. In 1993, the Government
set up a committee under the chairmanship of RN Malhotra, former Governor of RBI, to
propose recommendations for reforms in the insurance sector.The objective was to
complement the reforms initiated in the financial sector. The committee submitted its
report in 1994 wherein , among other things, it recommended that the private sector be
permitted to enter the insurance industry. They stated that foreign companies be allowed
to enter by floating Indian companies, preferably a joint venture with Indian partners.

Following the recommendations of the Malhotra Committee report, in 1999, the

Insurance Regulatory and Development Authority (IRDA) was constituted as an
autonomous body to regulate and develop the insurance industry. The IRDA was
incorporated as a statutory body in April, 2000. The key objectives of the IRDA include
promotion of competition so as to enhance customer satisfaction through increased
consumer choice and lower premiums, while ensuring the financial security of the
insurance market.

The IRDA opened up the market in August 2000 with the invitation for application for
registrations. Foreign companies were allowed ownership of up to 26%. The Authority
has the power to frame regulations under Section 114A of the Insurance Act, 1938 and
has from 2000 onwards framed various regulations ranging from registration of
companies for carrying on insurance business to protection of policyholders’ interests.

In December, 2000, the subsidiaries of the General Insurance Corporation of India were
restructured as independent companies and at the same time GIC was converted into a

16
national re-insurer. Parliament passed a bill de-linking the four subsidiaries from GIC in
July, 2002.

Today there are 14 general insurance companies including the ECGC and Agriculture
Insurance Corporation of India and 14 life insurance companies operating in the country.
The insurance sector is a colossal one and is growing at a speedy rate of 15-20%.
Together with banking services, insurance services add about 7% to the country’s GDP.
A well-developed and evolved insurance sector is a boon for economic development as it
provides long- term funds for infrastructure development at the same time strengthening
the risk taking ability of the country.

2.12. MILESTONES IN INDIAN LIFE INSURANCE BUSINESS

• 1912: The Indian Life Assurance Companies Act came into force for regulating
the life insurance business.
• 1928: The Indian Insurance Companies Act was enacted for enabling the
government to collect statistical information on both life and non-life insurance
businesses.
• 1938: The earlier legislation consolidated the Insurance Act with the aim of
safeguarding the interests of the insuring public.
• 1956: 245 Indian and foreign insurers and provident societies were taken over by
the central government and they got nationalized. LIC was formed by an Act of
Parliament, viz. LIC Act, 1956. It started off with a capital of Rs. 5 crore and that
too from the Government of India.

The history of general insurance business in India can be traced back to Triton Insurance
Company Ltd. (the first general insurance company) which was formed in the year 1850
in Kolkata by the British.

2.13. IMPORTANT MILESTONES IN THE INDIAN INSURANCE BUSINESS

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 • 1907: The Indian Mercantile Insurance Ltd. was set up which was the first
company of its type to transact all general insurance business.
• 1957: General Insurance Council, an arm of the Insurance Association of India,
framed a code of conduct for guaranteeing fair conduct and sound business
patterns.
• 1968: The Insurance Act improved for regulating investments and set minimal
solvency levels and the Tariff Advisory Committee was set up.
• 1972: The General Insurance Business (Nationalization) Act, 1972 nationalized
the general insurance business in India. It was with effect from 1st January 1973.

107 insurers integrated and grouped into four companies viz. the National Insurance
Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company
Ltd. and the United India Insurance Company Ltd. GIC was incorporated as a company.

2.14. Economic policy context and imperatives of liberalization of

insurance sector:

There are several imperatives for opening of the insurance and health insurance sector in
India for private investment. Here we review some of these imperatives. Economic
policy reforms started during late eighties and speeded up in nineties are the context in
which liberalization of insurance sector happened in India. It was very obvious that the
liberalization of the real (productive) and financial sector of the economy has to go hand
in hand. It is imperative that these sectors are consistent with policies of each other and
unless both function efficiently and are in equilibrium, it would be difficult to ensure
appropriate economic growth. Given these facts liberalization of both sectors has to
proceed simultaneously.Indian economic system has been developed on paradigm of
mixed economy in which public and private enterprises co-exist. The past strategies of
development based on socialistic thinking were focusing on the premise of restrictions,
regulations and control and less on incentives and market driven forces. This affected the
development process in the country in serious way. After the economic liberalization the
paradigm changed from central planning, command and control to market driven
development. Deregulation, decontrol, privatization, delicensing, globalization became

18
the key strategies to implement the new framework and encourage competition. The
social sectors did not remain unaffected by this change. The control of government
expenditure, which became a key tool to manage fiscal deficits in early 1990s, affected
the social sector spending in major way. The unintended consequences of controlling the
fiscal deficits have been reduction in capital expenditure and non-salary component of
many social sector programmes.This has led to severe resource constraints in the health
sector in respect of non-salary expenditure and this has affected the capacity and
credibility of the government health care system to deliver good quality care over the
years. Given the increasing salaries, lack of effective monitoring and lack of incentives to
provide good quality services the provides in the government sector became indifferent
to the clients. Clients also did not demand good quality and better access, as government
services were free of cost.

Under this situation more and more clients turned to the private sector health providers
and thus the private sector healthcare has expanded. Given the socialistic political
thinking and populist policy it has been generally difficult for any government to
introduce cost recovery in public health sector. Given that government is unable to
provide more resources for health care, and institute cost recovery, one of the ways to
reduce the under-funding and augment the resources in the health sector was to
encourage the development health insurance.

Another imperative for liberalization of the insurance sector was the need for long-term
financial resources on sustainable basis for the development of infrastructure sector such
as roads, transports etc. It was realized that during the course of economic liberalization,
the funds to development the infrastructure also became a major constraint. Country
certainly needed infrastructure development. For this the finances are major constraint. In
these investments the benefits are more social than private. The major concern was how
these finances can be made available at low costs. In past the development of social
sector were financed using government channeled funds through various semi-
government financial institutions. Under the liberalized economy this may not be
possible. One hope is that if the insurance sector develops rapidly under privatization

19
then it can provide long-term finance to the infrastructure sector.

The financial sector, which consists of banks, financial institutions, insurance companies,
provident funds schemes, mutual funds were all under government control. There was
less competition across these units. As a result these institutions remained significantly
less developed in their approach and management. Insurance sector has been most
affected by the government controls. Government had significant control on the policies
these insurance companies could offer and utilization of the resources mobilized by
insurance companies. One can see that most of the insurance products (e.g., life insurance
products) were promoted as mechanisms to improve the savings and tax shelters rather as
risk coverage instruments. Other segments of the insurance products grew because of the
statutory obligations (e.g., Motor Vehicle, Marine and Fire) under various acts. The
management and organization of insurance sector companies remained less developed
and they neglected new product development and marketing. Thus one of the hopes in
opening of the insurance sector was that the private and foreign companies would rapidly
develop the sector and improve coverage of the population with insurance using new
products and better management.

Last imperative for opening of the insurance sector was signing the WTO India. After
this there was little choice but to open the entire financial sector - including insurance
sector to private and foreign investors. (Dholakia 1999).

2.15. LIST OF INSURANCE COMPANIES IN INDIA:

LIFE INSURERS Websites

Public Sector
Life Insurance Corporation of India www.licindia.com
Private Sector
Allianz Bajaj Life Insurance Company Limited www.allianzbajaj.co.in

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Birla Sun-Life Insurance Company Limited www.birlasunlife.com
HDFC Standard Life Insurance Co. Limited www.hdfcinsurance.com
ICICI Prudential Life Insurance Co. Limited www.iciciprulife.com
ING Vysya Life Insurance Company Limited www.ingvysayalife.com
Max New York Life Insurance Co. Limited www.maxnewyorklife.com
MetLife Insurance Company Limited www.metlife.com
Om Kotak Mahindra Life Insurance Co. Ltd. www.omkotakmahnidra.com
SBI Life Insurance Company Limited www.sbilife.co.in
TATA AIG Life Insurance Company Limited www.tata-aig.com
AMP Sanmar Assurance Company Limited www.ampsanmar.com
Dabur CGU Life Insurance Co. Pvt. Limited www.avivaindia.com
GENERAL INSURERS
Public Sector
National Insurance Company Limited www.nationalinsuranceindia.com
New India Assurance Company Limited www.niacl.com
Oriental Insurance Company Limited www.orientalinsurance.nic.in
United India Insurance Company Limited www.uiic.co.in
Private Sector
Bajaj Allianz General Insurance Co. Limited www.bajajallianz.co.in
ICICI Lombard General Insurance Co. Ltd. www.icicilombard.com
IFFCO-Tokio General Insurance Co. Ltd. www.itgi.co.in
Reliance General Insurance Co. Limited www.ril.com
Royal Sundaram Alliance Insurance Co. Ltd. www.royalsun.com
TATA AIG General Insurance Co. Limited www.tata-aig.com
Cholamandalam General Insurance Co. Ltd. www.cholainsurance.com
Export Credit Guarantee Corporation www.ecgcindia.com
HDFC Chubb General Insurance Co. Ltd.
REINSURER

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General Insurance Corporation of India www.gicindia.com

2.16. CONCEPT AND FUNCTIONS OF INSURANCE

Insured, are you? The functions of Insurance will give you an idea on how to go ahead
with the approach of insurance and what type of insurance to choose. In a layman's
words, insurance means, ‘a guard against pecuniary loss arising on the happening of an
unforeseen event’. In developing economies, the insurance sector still holds a lot of
potential which can be tapped. Majority of the people in the developing countries
remains unaware of the functions and benefits of insurance and it is for this reason that
the insurance sector is still to grow.

Tangible or intangible – an individual can insure anything! Be it a house, car, factory, or

the voice of a singer, leg of a footballer, and the hand of an author.....etc. It is possible to
insure all these as they have the possibility of becoming non functional by any disaster or
an accident.

BASIC FUNCTIONS OF INSURANCE:

1. 1.Primary Functions
2. 2.Secondary Functions
3. 3.Other Functions

Primary functions of insurance

• Providing protection – The elementary purpose of insurance is to allow security

against future risk, accidents and uncertainty. Insurance cannot arrest the risk
from taking place, but can for sure allow for the losses arising with the risk.
Insurance is in reality a protective cover against economic loss, by apportioning
the risk with others.

22
 • Collective risk bearing – Insurance is an instrument to share the financial loss. It
is a medium through which few losses are divided among larger number of
people. All the insured add the premiums towards a fund and out of which the
persons facing a specific risk is paid.
• Evaluating risk – Insurance fixes the likely volume of risk by assessing diverse
factors that give rise to risk. Risk is the basis for ascertaining the premium rate as
well.
• Provide Certainty – Insurance is a device, which assists in changing uncertainty
to certainty.

Secondary functions of insurance

• Preventing losses – Insurance warns individuals and businessmen to embrace

appropriate device to prevent unfortunate aftermaths of risk by observing safety
instructions; installation of automatic sparkler or alarm systems, etc.
• Covering larger risks with small capital – Insurance assuages the businessmen
from security investments. This is done by paying small amount of premium
against larger risks and dubiety.
• Helps in the development of larger industries – Insurance provides an
opportunity to develop to those larger industries which have more risks in their
setting up.

Other functions of insurance

• Is a savings and investment tool – Insurance is the best savings and investment
option, restricting unnecessary expenses by the insured. Also to take the benefit
of income tax exemptions, people take up insurance as a good investment option.
• Medium of earning foreign exchange – Being an international business, any
country can earn foreign exchange by way of issue of marine insurance policies
and a different other ways.
• Risk Free trade – Insurance boosts exports insurance, making foreign trade risk
free with the help of different types of policies under marine insurance cover.

23
Insurance provides indemnity, or reimbursement, in the event of an unanticipated loss or
disaster. There are different types of insurance policies under the sun cover almost
anything that one might think of. There are loads of companies who are providing such
customized insurance policies.

2.17. CHALLENGES FACING INSURANCE INDUSTRY:

• Threat of New Entrants: The insurance industry has been budding with new
entrants every other day. Therefore the companies should carve out niche areas
such that the threat of new entrants might not be a hindrance. There is also a
chance that the big players might squeeze the small new entrants.
• Power of Suppliers: Those who are supplying the capital are not that big a
threat. For instance, if someone as a very talented insurance underwriter is
presently working for a small insurance company, there exists a chance that any
big player willing to enter the insurance industry might entice that person off.
• Power of Buyers: No individual is a big threat to the insurance industry and big
corporate houses have a lot more negotiating capability with the insurance
companies. Big corporate clients like airlines and pharmaceutical companies pay
millions of dollars every year in premiums.
• Availability of Substitutes: There exist a lot of substitutes in the insurance
industry. Majorly, the large insurance companies provide similar kinds of services
– be it auto, home, commercial, health or life insurance.

How to choose an insurance company?

There are many factors to probe into when an investor chose an insurance company.

24
 • The consumers as well as the investors should only focus on the insurer's
financial strength and capability to meet ongoing responsibilities to its
policyholders.
• The fundamentals of the insurance company should be strong and should not
indicate a poor investment opportunity as this might also deter growth.

2.18. TOP INSURANCE COMPANIES IN INDIA:

Life Insurance Corporation of India -

The Life Insurance Corporation of India (LIC) is undoubtedly India's largest life
insurance company. Fully owned by government, LIC is also the largest investor of the
country. LIC has an estimated asset of Rs. 8 Trillion. It also funds almost 24.6% of the
expenses of Government of India.

Established in 1956 and headquartered in Mumbai, Life Insurance Corporation of India

has 8 zonal offices, 100 divisional offices, 2,048 branch offices and a vast network of
10,02,149 agents spread across the country.

Tata AIG Insurance Solutions-

Tata AIG Insurance Solutions, one of the leading insurance providers in India, started its
operation on April 1, 2001. A joint venture between Tata Group (74% stake) and
American International Group, Inc. (AIG) (26% stake), Tata AIG Insurance Solutions
has two different units for life insurance and general insurance. The life insurance unit is
known as Tata AIG Life Insurance Company Limited, whereas the general insurance unit
is known as Tata AIG General Insurance Company Limited.

AVIVA Life Insurance -

AVIVA Life Insurance, one of the popular insurance companies in India, is a joint

25
venture between the renowned business group, Dabur and the largest insurance group in
the UK, Aviva plc. AVIVA Life Insurance has an extensive network of 208 branches and
about 40 Bancassurance partnerships, spread across 3,000 cities and towns across the
country. There are more than 30,000 Financial Planning Advisers (FPAs) working for
AVIAV Life Insurance. It offers various plans like Child, Retirement, Health, Savings,
Protection and Rural.

MetLife Insurance -

MetLife India Insurance Company Limited is another popular player in Indian insurance
sector. A joint venture between the Jammu and Kashmir Bank, M. Pallonji and Co.
Private Limited and other private investors and MetLife International Holdings, Inc.,
MetLife Insurance offers a wide range of financial solutions to its customers including
Met Suraksha, Met Suraksha TROP, Met Mortgage Protector and Met Suraksha Plus etc.
It has its branches situated over 600 locations across the country. More than 50,000
Financial Advisors work for MetLife.

ING Vysya Life Insurance -

ING Vysya Life Insurance entered into the Indian insurance industry in September 2001.
A joint venture between ING Group, Ambuja Cements, Exide Industries and Enam
Group, ING Vysya Life Insurance uses its two channels, viz. the Alternate Channel and
the Tied Agency Force to distribute its products. The first channel has branches in 234
cities across the country and has got 366 sales teams. On the other hand, the later one has
more than 60,000 advisors. Currently, ING Vysya Life Insurance has tie ups with more
than 200 cooperative banks.

Birla Sun Life Financial Services -

Birla Sun Life Financial Services is a joint venture between Aditya Birla Group and Sun

26
Life Financial Inc, Canada. It has got an extensive network of more than 600 branches.
More than 1,75,000 empanelled advisors work for Birla Sun Life, which currently covers
over 2 million lives.

MAX New York Life -

Max New York Life Insurance Company Ltd. is one of the top insurance companies in
India. A joint venture between Max India Limited and New York Life International (a
part of the Fortune 100 company - New York Life), Max New York Life Insurance
Company Ltd. started its operation in April 2001. It currently has around 715 offices
located in 389 cities across the country. It also has around 75,832 agent advisors. Max
New York Life offers 39 products, which cover both, life and health insurance.

Bajaj Allianz -

Bajaj Allianz is a joint venture between Bajaj Finserv Limited and Allianz SE, where
Bajaj Finserv Limited holds 74% of the stake, whereas Allianz SE holds the rest 26%
stake. Bajaj Allianz has been rated iAAA by ICRA for its ability to pay claims. The
company also achieved a growth of 11% with a premium income of Rs. 2866 crore as on
March 31, 2009.

Bharti AXA Life Insurance -

Bharti AXA Life Insurance, one of the top insurance companies in India, is a joint
venture between Bharti group and world leader AXA. Bharti holds 74% stakes, whereas
AXA holds the rest of 26%. Bharti AXA has its branches located in 12 states across the
country. It offers a range of individual, group and health plans for its customers.
Currently more than 8000 employees work for Bharti AXA Life Insurance.

27
 2.2. HEALTH
INSURANCE
IN INDIA

2.21.HEALTH INSURANCE IN INDIA: CURRENT SCENARIO

Introduction

28
The health care system in India is characterised by multiple systems of medicine, mixed
ownership patterns and different kinds of delivery structures. Public sector ownership is
divided between central and state governments, municipal and Panchayat local
governments. Public health facilities include teaching hospitals, secondary level
hospitals, first-level referral hospitals (CHCs or rural hospitals), dispensaries; primary
health centres (PHCs), sub-centres, and health posts. Also included are public facilities
for selected occupational groups like organized work force (ESI), defence, government
employees (CGHS), railways, post and telegraph and mines among others. The private
sector (for profit and not for profit) is the dominant sector with 50 per cent of people
seeking indoor care and around 60 to 70 per cent of those seeking ambulatory care (or
outpatient care) from private health facilities. While India has made significant gains in
terms of health indicators - demographic, infrastructural and epidemiological (See Tables
1 and 2), it continues to grapple with newer challenges. Not only have communicable
diseases persisted over time but some of them like malaria have also developed
insecticide-resistant vectors while others like tuberculosis are becoming increasingly
drug resistant. HIV / AIDS has of late assumed extremely virulent proportions. The
1990s have also seen an increase in mortality on account of non-communicable diseases
arising as a result of lifestyle changes. The country is now in the midst of a dual disease
burden of communicable and noncommunicable diseases. This is coupled with spiralling
health costs, high financial burden on the poor and erosion in their incomes. Around 24%
of all people hospitalized in India in a single year fall below the poverty line due to
hospitalization (World Bank, 2002). An analysis of financing of hospitalization shows
that large proportion of people; especially those in the bottom four-income quintiles
borrow money or sell assets to pay for hospitalization (World Bank, 2002)

This situation exists in a scenario where health care is financed through general tax
revenue, community financing, out of pocket payment and social and private health
insurance schemes. India spends about 4.9% of GDP on health (WHR, 2002). The per
capita total expenditure on health in India is US$ 23, of which the per capita Government
expenditure on health is US$ 4. Hence, it is seen that the total health expenditure is
around 5% of GDP, with breakdown of public expenditure (0.9%); private expenditure

29
(4.0%). The private expenditure can be further classified as out-of-pocket (OOP)
expenditure (3.6%) and employees/community financing (0.4%). It is thus
evident that public health investment has been comparatively low. In fact as a percentage
of GDP it has declined from 1.3% in 1990 to 0.9% as at present. Furthermore, the central
budgetary allocation for health (as a percentage of the total Central budget) has been
stagnant at 1.3% while in the states it has declined from 7.0% to 5.5%.
Table 1. Socioeconomic indicators
Land area 2% of world area

Burden of disease (%) 21% of global disease burden

Population 16% of world population

Urban : Rural 28:72

Literacy rate (%) 65.38

Sanitation (%) Rural – 9.0; Urban – 49.3

Safe drinking water supply Rural – 98; Urban – 90.2

(%)

Poverty (%) Below poverty line – 26

Rural – 27.09; Urban – 23.62

Poverty line (Rs.) Rural – 327.56; Urban – 454.11

Health sector and its financing: present scene and issues for the future
During the last 50 years India has developed a large government health infrastructure
with more than 150 medical colleges, 450 district hospitals, 3000 Community Health
Centers, 20,000 Primary Health Care centers and 130,000 Sub-Health Centers. On top of
this there are large number of private and NGO health facilities and practitioners scatters
though out the country.

30
Over the past 50 ears India has made considerable progress in improving its health status.
Death rate has reduced from 40 to 9 per thousand, infant mortality rate reduced from 161
to 71 per thousand live births and life expectancy increased from 31 to 63 years.
However, many challenges remain and these are: life expectancy 4 years below world
average, high incidence of communicable diseases, increasing incidence of non-
communicable diseases, neglect of women's health, considerable regional variation and
threat from environment degradation. It is estimated that at any given point of time 40 to
50 million people are on medication for major sickness in India. About 200 million
workdays are lost annually due to sickness. Survey data indicate that about 60% people
use private health providers for outpatient treatment while 60 % use government
providers for in-door treatment. The average expenditure for care is 2-5 times more in
private sector than in public sector.

India spends about 6% of GDP on health expenditure. Private health care expenditure is
75% or 4.25% of GDP and most of the rest (1.75%) is government funding. At present,
the insurance coverage is negligible. Most of the public funding is for preventive,
promotive and primary care programmes while private expenditure is largely for curative
care. Over the period the private health care expenditure has grown at the rate of 12.84%
per annum and for each one percent increase in per capital income the private health care
expenditure has increased by 1.47%. Number of private doctors and private clinical
facilities are also expanding exponentially. Indian health financing scene raises number
of challenges, which are: increasing health care costs, high financial burden on poor
eroding their incomes, increasing burden of new diseases and health risks and neglect of
preventive and primary care and public health functions due to under funding of the
government health care.

Given the above scenario exploring health-financing options becomes critical. Health
Insurance is considered one of the financing mechanisms to over come some of the
problems of our system.

2.22. Consumer and social perspective on health insurance

31
With the liberalization of insurance and entry of private companies in this business it is
very important that specific interventions are developed which focus on increasing the
consumer awareness about insurance products. One of the major challenges after
privatization of insurance would be how to develop such mechanisms, which help
making consumers aware about the various intricacies of insurance plans. As of now
information, knowledge and awareness of existing insurance plans is very limited. This is
also shown by the study of Gumber and Kulkarni (2000) among the members of SEWA,
ESIS and mediclaim schemes. With Consumer Protection Act coming in force it has
become easy for aggrieved consumers to complain and seek redressal for their problems.
Consumer organizations such as CERC of Ahmedabad have been helping consumers to
get due justice in disputes with the insurance companies. Their experience would be
varying valuable in guiding development of health insurance plans that are transparent
and just.

Many a times the insurance claims are rejected due to some small technical reasons. This
leads to disputes. Most of the time the conditions and various points included in
insurance policy contracts is not negotiable and these are binding on consumers. There is
no analysis on what is fair practice and what is unfair practice. Given that insurance
companies are large and almost monopoly setting the consumers is treated as secondary
and they do not have opportunity to negotiate the terms and conditions of a contract.
Many times insurance companies do not strictly follow the conditions in all cases and
this create confusion and disputes. (Shah M 1999)

The most important area of dispute and unfair treatment is the knowledge and
implications of pre-exiting conditions. A number of cases of litigation are disagreement
on these pre-existing conditions. These problems also arise because of lack of
specification of number of areas and properly spelling out the conditions. This is also
because some chronic conditions such as high blood pressure and diabetes can increase
the risk of may other disease of organs such as heart, kidney, vascular and eyes diseases.
The patients with these pre-existing conditions are denied claims for treatment of
complications. This is not fair and leads to disputes.

32
Health insurance is typically annual and has to be renewed yearly. Policy, which is not
renewed in time lapses and a new policy has to be taken out. Medical conditions detected
during the interim period are treated as pre-existing condition for the new policy, which
is not fair. This is seen as major issue as it changes the conditionalities about what
constitutes pre- exiting conditions. Courts, however, have ruled that even if there is delay
in renewing the policies it should be considered as renewed policy. In case two doctors
give different reports one favouring consumer and other insurance company, the
insurance company generally follows the later opinion. There are several such consumer-
related issues, which need to be addressed in health insurance.

One of the planks on which the insurance has been deregulated is the gain in efficiency
and passing on these benefits to the consumers. It is very unrealistic to assume that
insurance companies will be able to gain efficiency, which helps them to reduce the price
of schemes. At least one should not be expecting this thing happening in the short-run.
But providing full information to the consumer and dealing with claims in a just and
expeditious manner is the minimum expected outcome of the deregulation process.
Consumer organizations have to play very active role in future development of the health
insurance sector in India.

There are several social issues such as exclusions of sexually transmitted diseases, AIDS,
delivery and maternal conditions etc. These are not socially and ethically acceptable.
"Insurance companies much take care of all the risks related to health. The companies
may charge additional premium for certain conditions. Secondly the present mediclaim
policy premiums are high and do not differentiate between people living in urban and
rural areas where the costs of medical care are different. Thus the present policy is less
attractive to poor and rural people. The tax subsidy provided to the mediclaim is also
going largely to the rich who are the taxpayers.

The newer health insurance policies have to improve upon the shortcoming of the
existing policies.

33
2.23. Impact of Health insurance on structure and quality of private
provision

The experiences in liberalizing the private health insurance suggest that it has undesirable
effects on the costs of health care. The costs of care generally go up. Given the present
system of fee for service and current scenario of health infrastructure in private sector,
the development of insurance will need improvements in quality and change in structure.
The new investments to improve quality will result into high cost and therefore increase
in prices of insurance products. There would be developments in the direction of
exploring options of managed care, which would help in reducing the costs. The
developments would be needed in the direction of strong information base and
accreditation system for providers. The structure of the health sector will have to change
from multiple-single doctor hospitals and clinics to larger hospitals and polyclinics,
which provide services of multiple specialities and can operate at larger scale. This
will allow them to provide high quality professional care at competitive prices. As one of
the responses to these issues Third Party Administrators (TPA) are rapidly emerging in
India. Here we can learn from the models, which have emerged elsewhere. But their
applicability to Indian situation needs to be examined carefully. These aspects of the
health sector will need detailed study.

We lack adequate information base to operate insurance schemes at large scale. The
insurance mechanism prevalent in many developed countries has their history. Health
reforms experiences in many countries are replete with the suggestion that the systems
cannot be replicated easily.

Self-regulation is an important in any market driven system. The regulation from outside
does not work. Implementation of regulation in this sector is difficult. We significantly
lack mechanisms and institutions, which would ensure self- regulation and continuing
education of provides and various stakeholders. The accreditation systems are hard to
implement without mechanisms to self-regulate. For example it took 35 years in US to

34
put the accreditation system effectively in place. For example, it has been difficult for
many States in India to put nursing homes legislation in place. Given the deterioration on
standards in medical education, lack of regulation by medical council and rising
expectations of the community it is difficulty to ensure quality standards in Indian health
care system. Given this situation health insurance systems will have to deal with this
complex issue of quality of care in years to come.

2.24. Role of regulators

The government has established Insurance Regulatory and Development Authority
(IRDA) which is the statutory body for regulation of the whole insurance industry. They
would be granting licenses to private companies and will regulate the insurance business.
As the health insurance is in its very early phase, the role of IRDA will be very crucial.
They have to ensure that the sector develops rapidly and the benefit of the insurance goes
to the consumers. But it has to guard against the ill effects of private insurance. The main
danger in the health insurance business we see is that the private companies will cover
the risk of middle class who can afford to pay high premiums. Unregulated
reimbursement of medical costs by the insurance companies will push up the prices of
private care. So large section of India's population who are not insured will be at a
relative disadvantage as they will, in future, have to pay much more for the private
care. Thus checking increase in the costs of medical care will be very important role of
the IRDA.

Secondly, IRDA will need to evolve mechanisms by which it puts some kind of statue in
place that private insurance companies do not skim the market by focusing on rich and
upper- class clients and in the process neglect a major section of India's population. They
must ensure that companies develop products for such poorer segments of the community
and possibly build an element of cross-subsidy for them. Government companies can
take the lead in this matter and catalyze new products for the poor and lower middle class
as they have done in the past.

35
Thirdly the regulators should also encourage NGOs, Co-operatives and other collectives
to inter into the health insurance business and develop products for the poor as well as for
the middle class employed in the services sector such as education, transportation,
retailing etc and the self employed. This could be run as no-profit-no loss basis similar to
the scheme pioneered by Indian Medical Association for its members. Special licenses
will have to be given to NGO for this purpose without insisting on the minimum capital
norms, which are for commercial insurance companies.

2.25. VARIOUS HEALTH INSURANCE PRODUCTS AVAILABLE IN INDIA

The existing health insurance schemes available in India can be broadly categorized as:

Voluntary health insurance schemes or private-for-profit schemes Mandatory health

insurance schemes or government run schemes (namely ESIS, CGHS) Insurance offered
by NGOs/Community based health insurance Employer based schemes

1. Voluntary health insurance schemes or private-for-profit schemes:

In private insurance, buyers are willing to pay premium to an insurance company that
pools similar risks and insures them for health related expenses. The main distinction is
that the premiums are set at a level, which are based on assessment of risk status of the
consumer (or of the group of employees) and the level of benefits provided, rather than
as a proportion of consumer’s income.

In the public sector, the General Insurance Corporation (GIC) and its four subsidiary
companies (National Insurance Corporation, New India Assurance Company, Oriental
Insurance Company and United Insurance Company) provide voluntary insurance
schemes.

The most popular health insurance cover offered by GIC is Mediclaim policy

36
Mediclaim policy: - It was introduced in 1986. It reimburses the hospitalization
expenses
owing to illness or injury suffered by the insured, whether the hospitalization is
domiciliary or otherwise. It does not cover outpatient treatments. Government has
exempted the premium paid by individuals from their taxable income.
Because of high premiums it has remained limited to middle class, urban tax payer
segment of population.

Some of the various other voluntary health insurance schemes available in the market are
:- Asha deep plan II , Jeevan Asha plan II, Jan Arogya policy, Raja Rajeswari policy,
Overseas Mediclaim policy, Cancer Insurance policy, Bhavishya Arogya policy, Dreaded
disease policy, Health Guard, Critical illness policy, Group Health insurance policy,
Shakti Shield etc. At present Health insurance is provided mainly in the form of riders.
There are very few pure health insurance policies under voluntary health insurance
schemes.

2. Mandatory health insurance schemes or government run schemes (namely ESIS,

CGHS)

Employer State Insurance Scheme (ESI):- Enacted in 1948, the employers’ state
insurance (ESI) Act was the first major legislation on social security in India. The
scheme applies to power using factories employing 10 persons or more and non-power &
other specified establishments employing 20 persons or more. It covers employees and
the dependents against loss of wages due to sickness, maternity, disability and death due
to employment injury. It also covers funeral expenses and rehabilitation allowance.
Medical care comprises outpatient care, hospitalization, medicines and specialist care.
These services are provided through network of ESIS facilities, public care centers, non-
governmental organizations (NGOs) and empanelled private practitioners. The ESIS is
financed by three way contributions from employers, employees and the state
government.

37
Even though the scheme is formulated well there are problem areas in managing this
scheme. Some of the problems are :-

 Large numbers of posts of medical staff remain vacant due to high turnover and
low remuneration compared to corporate hospitals.
 Rising costs and technological advancement in super specialty treatment.
Management information is not satisfactory.
 The patients are not satisfied with the services they get Low utilization of the
hospitals.

In rural areas, the access to services is also a problem.All these problems indicate an
urgent need for reforms in the ESIS Scheme.

Central Government Health Insurance Scheme (CGHS):- Established in 1954, the

CGHS covers employees and retirees of the central government and certain autonomous
and semi autonomous and semi-government organizations. It also covers Members of
Parliament, Governors, accredited journalists and members of general public in some
specified areas.
Benefits under the scheme include medical care, home visits/care, free medicines and
diagnostic services. These services are provided through public facilities with some
specialized treatment (with reimbursement ceilings) being permissible at private
facilities. Most of the expenditure is met by the central government as only 12% is the
share of contribution.

The CGHS has been criticized from the point of view of quality and accessibility.
Subscribers have complained of high out of pocket expenses due to slow reimbursement
and incomplete coverage for private health care (as only 80% of the cost is reimbursed if
referral is made to private facility, when such facilities are not available with the CGHS).

Universal Health Insurance Scheme (UHIS):- For providing financial risk protection

38
to the poor, the government announced UHIS in 2003. Under this scheme, for a premium
of Rs. 165 per year per person, Rs.248 for a family of five and Rs.330 for a family of
seven , health care for sum assured of Rs. 30000/- was provided. This scheme has been
made eligible for below poverty line families only. To make the scheme more saleable,
the insurance companies provided for a floater clause that made any member of family
eligible as against mediclaim policy which is for an individual member. In spite of all
these, the scheme was not successful.

The reasons for failing to attract rural poor are many :-

The public sector companies who where required to implement this scheme find it to be
potentially loss making and do not invest in propagating it. To meet the target, it is
learnt that several field officers pay the premium under fictious names. Identification of
eligible families is a difficult task Poor find it difficult to pay the entire premium at one
time for future benefit, foregoing current consumption needs. Paper work required to
settle the claims is cumbersome Deficit in availability of service providers Set back due
to health insurance companies refusing to renew the previous year’s policies.

In 2004, the government also provided an insurance product to the Self Help Group
(SHG) for a premium of Rs.120 and sum assured of Rs.10000/-. However, the intake is
negligible. The reasons for poor intake are similar to those cited above.

3. Insurance offered by NGOs/Community based health insurance

Community based schemes are typically targeted at poorer population living in

communities. Such schemes are generally run by charitable trusts or non-governmental
organizations (NGOs). In these schemes the members prepay a set amount each year for
specified services. The premia are usually flat rate (not income related) and therefore not
progressive. The benefits offered are mainly in terms of preventive care, though
ambulatory and inpatient care is also covered. Such schemes tend to be financed through
patient collection, government grants and donations. Increasingly in India, CBHI
schemes are negotiating with for profit insurers for the purchase of custom designed

39
group insurance policies.

CBHI schemes suffer from poor design and management. Often there is a problem of
adverse selection as premiums are not based on assessment of individual risk status.
These schemes fail to include the poorest of the poor. They have low membership and
require extensive financial support. Other issues relate to sustainability and replication of
such schemes.

Some of the popular Community Based Health Insurance schemes are: - Self-Employed
Women’s Association (SEWA), Tribuvandas Foundation (TF), The Mullur Milk Co-
operative, Sewagram, Action for Community Organization, Rehabilitation and
Development (ACCORD), Voluntary Health Services (VHS) etc.

4. Employer based schemes

Employers in both public and private sector offers employer based insurance schemes
through their own employer. These facilities are by way of lump sum payments,
reimbursement of employees’ health expenditure for out patient care and hospitalization,
fixed medical allowance or covering them under the group health insurance schemes.

The Railways, Defense and Security forces, Plantation sector and Mining sector run their
own health services for employees and their families.

2.26.GENERAL INSURANCE VS. LIFE INSURANCE

Several life insurance companies have of late plunged into the health segment, which till
recently was dominated by general insurance companies. Among others, ICICI
Prudential has launched Hospital Care and Crisis Cover and Bajaj Allianz, the Care First
plan. Life Insurance Corporation, too, plans to roll out products soon. But, are these
products any different from those offered by the general insurance companies, popular as

40
mediclaim policies?

Advantages of Health insurance offered by Life insurer: Because of the long term
nature of the plans, the policy holder can plan in advance his future medical/care
expenses. But it is not so under General insurance. Since, the general insurance policies
are subject to renewal every year, if the policy holder has been making several claims
and is considered a risk, the general insurance company may deny renewal or renew it for
a much higher premium.

Advantages of Health insurance offered by General insurer: Though a lump sum

amount is paid by life insurers and is of long term nature, this comes with a cost. They
charge bigger premiums compare with the General insurers. In addition, most general
insurance companies offer medical charges up to 30 days before a person is hospitalized
and pay the claims if a person has been undergoing treatment at home - also called
domiciliary hospitalization. The life insurers seem to lack this facility at this point in
time.
2.27. HEALTH INSURANCE FOR SENIOR CITIZENS

Ageing health policy questions are now frequently raised in India. India has not yet found
a clear,fair and adequate system for financing the growing demand for long-term care as
the population ages. The migration of population for jobs and livelihood from rural areas
to urban areas and between cities has led to the breaking down of the age old traditional
“joint” or “extended” family system in India. This system provides a good supporting
structure for the care of older persons by keeping families together, pooling financial
resources and making family members available in case of need. This weakening in the
traditional support systems for older people is expected to lead to a rapid increase in the
demand for formal care provided by institutions such as nursing and residential homes
and also services provided in the community.

At present, there are no social schemes or federal or central government mechanisms for
funding of health care for the aging population. The reliance is currently on private

41
sector, voluntary organizations and indigenous programs that deliver 80% of health care
(the remainder is in the form of Government hospitals and Municipal corporations). The
medical infrastructure to handle substantial number of older adults is lacking. There is no
provision for organized long term care for chronically sick, except for the upper middle
class and the rich who can afford to provide good care at home with some professional
help. Hence, there is a need for innovative, cost effective health insurance products for
senior citizens which cater effectively to their needs.

LONG TERM CARE

This paper focuses primarily on long-term care as the subject of long-term care (LTC) is
receiving increasing attention both in the research community and by Government
because of the belief that an ageing population will greatly swell the demand for long
term care services and create huge public expense. One of the issues which need to be
determined is by how much demand will increase; another is to address the ambiguity
over whether long-term care is a response to a medical condition, a social need or both.
The corollary is to decide how the burden is to be shared between the individual, the
family and the state.

Before going on to discussing what different nations are doing, it is essential we first
appreciate the nature and significance of long-term health care.

Long-term care is administered to people who have reached a stage in life in which they
are dependent on others for social, personal and medical needs. It is usually associated
with the very old, but, in fact, could begin at any age depending on the reasons for their
disability – perhaps a road accident, a mental or a congenital condition. An important
social objective for long-term care is to ensure that people are given the opportunity to
choose where their care is delivered. Given that older people prefer to remain at home the
availability and affordability of help to support this is crucial.

Various countries have different insurance systems to cover LTC. India is acquainted

42
with short- term health schemes provided by non-life insurers and the government. The
need of the hour in India, keeping in view the increasing tendency to opt for nuclear
family system and increased longevity, is a comprehensive long term health care facility
for all. If we look at most developed economies (a microcosm of which is discussed here
below), we see that most of these nations have a working and workable LTC system for
the benefit of its citizens, primarily the senior citizens.

Experiences from other countries need to be studied, so that we can develop a model
based on good innovations from various countries while keeping the realities of Indian
health system.

2.28. MODELS OF LONG TERM CARE IN OTHER COUNTRIES

1) GERMANY

Mandatory long-term care (LTC) insurance was introduced throughout Germany at the
beginning of 1995. Up to that date, long-term care had not been a public concern like
pensions and health care. According to German law, children are obliged to support their
parents in old age, to the degree
that their own resources are sufficient. Only if family income and wealth has proved to
be
insufficient can the elderly may apply for income support.

Financing

The German insurance is a Pay as you go (PAYG) system where risks are pooled and
benefits are independent of earlier contributions. ‘Pay as You Go’ in which current
contributors pay for current recipients of care.

43
One peculiarity of the LTC insurance component is that it has defined contributions and
defined benefits at the same time. This means that total benefits and total contributions
must match on average, and so far this requirement seems to have been met. All
employees as well as individuals with some other kind of income have to be insured. In
addition, voluntary insurance is offered to some groups. Employers and employees pay
the same percentage of the wage. Retired people also contribute to the insurance. Civil
servants since they are not part of the social health insurance programme are obliged to
take up private insurance, and get part of the contribution paid by their employer.

For people dependent on income support, the local authority concerned may choose
between paying the contributions on behalf of the individuals concerned and taking the
risk of having to pay for their care.

Because it is a PAYG system, the LTC insurance has not been able to build up more than
a small financial balance. According to the law, the balance must be sufficient to
continue to make payments for 1.5 months; at the moment it is sufficient to cover three.

Benefits

It takes five years to qualify for benefits. Apart from that, the only qualifying
requirement is the need for care, so benefits are paid independent of age. Three kinds of
benefits are offered: professional domiciliary care, institutional care, and benefits in cash.
Different kinds of benefits may also be combined. Benefits are not dependent on the
income of the individual. People applying for benefits are examined by a doctor and then
divided into three groups. The critical factors are the person’s ability to perform activities
of daily living (ADL), together with the time that these activities are estimated to
consume. Mental impairments are not taken into account.

2) JAPAN

Since Japan became industrialized quite late, it also developed social security systems

44
slightly later than most other developed countries. Family patterns changed as traditional
caring arrangements based on three-generation households and obligations on children to
look after elderly parents showed signs of breaking down. In 1997, following a long
discussion, a mandatory long-term care insurance was passed in the Japanese parliament.

Financing

The LTC insurance is financed by 50 % from taxes and by 50 % from insurance

premiums. The tax revenues are collected by 50 % from national taxes, and local and
regional taxes contribute with 25 % each. Premiums are collected from people aged 40
years and over. Family members are automatically covered.
For the elderly, premiums are deducted from pensions. These premiums are also income-
Related The LTC insurance is administered by municipalities.

Benefits

Eligibility for benefits from the LTC insurance is solely based on need. Thus, the
financial position and family structure of the insured are not taken into account. The LTC
insurance covers institutional as well as home-based care, and clients in all categories
except the least needy may choose between them.

There are three kinds of institutions: former social service nursing homes, formerly
health- insurance financed homes for elderly and medical nursing care facilities. Home
care services included are nursing care, rehabilitation, medical advice and various
community services.

Unlike the German system there are no cash benefits provided in the scheme.
When the private LTC insurance was introduced, several large for-profit corporations
made huge investments in home services in the anticipation of increased demand due to
the increased freedom to choose providers. However, recipients have proved to be more
conservative than expected, and stayed with their former providers. This has incurred

45
some losses on private corporations offering home care.

3) UNITED STATES

The United States had a quite ambitious social welfare programme for elderly already
around the turn of the twentieth century. At this time, more than one quarter of federal
expenditure was dedicated to pensions for Civil War veterans and their families.
Long-term care makes up a small but increasing part of public spending in the United
States.

Financing

In the United States, funds for health and long-term care for elderly is provided from
public as well as private sources. Public funding is based on Medicaid and Medicare
programmes, whilst the private element consists of private insurance as well as out of-
pocket payments

Medicaid is a tax-based programme designed for low-income earners. It covers hospital

care as well as home care. Even if the Medicaid programme was not originally designed
to concentrate on help for the elderly, it has evolved into an important pillar for long-
term care financing

Medicare is a national social insurance programme. Contributions are paid either as

‘Medicare tax’ while working, or by continuing to pay premiums after retirement.
Medicare compensates nursing home costs if the insured has been treated in a hospital for
at least three days. Medicare only reimburses costs for doctors’ and nurses’ services.
Home care is only provided if the client needs skilled nursing care and is homebound.
However, for clients meeting the requirements, personal care services may be provided
as well. Medicare home services are provided for free

In recent years, a private market for long-term care insurance has emerged in the United

46
States. Private insurance companies – there are more than 100 of them – offer
complementary insurance for costs related to long-term care. The insurance products are
designed for cases where benefits from Medicare have been exhausted, and where the
insured is not entitled to Medicaid benefits. Insurance is voluntary, and has normally
been taken out individually.

Before signing up, the policyholder goes through a medical examination. The insurance
company also requests information regarding the customer’s consumption of medical
services, his or her lifestyle and physical or mental disabilities, if any. Contributions are
based on these data, and sometimes they become prohibitively high. Estimates show that
as much as 20 % of the elderly population would be refused long term care insurance.

Benefits

Benefits offered by private long-term insurance policies vary. Some only include nursing
home care, whereas others only cover home care. Typically, only care given by nurses or
doctors is covered. Normally, policies offer a fixed per diem compensation if care is
needed. Benefits are paid for a limited time; e.g. five years or remaining life years

The financing of LTC is a very topical issue in the United States. Weaknesses in the
existing system have received particular attention, and there is widespread concern that
LTC may become more problematic under the burden of ageing.

4) United Kingdom

The main principle of the British LTC system as it evolved during the post-war era was
that local authorities provided care in residential homes, whereas the NHS took care of
particularly frail people.

47
Financing

In the UK there are two main sources of LTC funding (apart from consumers
themselves), namely local authorities and the NHS. Local authorities are responsible for
the bulk of public spending on LTC, and their share has increased in the last few years.
Local authorities have two main sources of funding - government grants and council
taxes. Government grants are decided annually by the central government and then
distributed to the individual authorities according to a resource allocation formula.

Since 1991, there is also a market for private LTC insurance that is growing slowly The
first private insurance policies for LTC costs were introduced in 1991 and there is now a
wide variety of policies offered on the market. There are two main types of insurance on
offer.
The first one is pre-funded plans that are purchased by healthy people to protect them
against future costs of LTC. The other type is ‘immediate needs’ plans that are purchased
by people that are already disabled to insure the risk of uncertain survival duration. The
payment of pre- funded benefits is normally conditioned on failure of a certain number of
ADL:s and not on personal circumstances – such as whether the client lives at home or in
an institution. Maximum benefits are normally limited.

Benefits

State financing covers residential as well as domiciliary care. Local authorities are
obliged to provide assessment of need by a case manager. The case manager suggests a
package of services appropriate for the client in question.
The majority of care is provided in the person’s own home. Home care is defined as
services which assist the client to function as independently as possible and/or continue
to live in their own home. Services may involve routine household tasks within or
outside the home, personal care of the client or respite care in support of the client’s
regular careers.

48
Institutional care is provided in several different kinds of homes. The predominant ones
are nursing homes and residential homes. Residential homes provide board and personal
care only, whereas nursing homes also provide daily nursing care and thus are more
targeted at people with severe disability. In the last decade, there has been a steady
increase in the number of dual homes, providing both residential and nursing care.

The system for financing and provision in the United Kingdom has been criticized on
several grounds. For example, it has been accused of offering poor co-ordination between
different financing bodies and thus providing incentives for cost shifting.

Furthermore, there has been broad agreement that the system is unfair since it penalizes
savers and fails to offer comprehensive coverage despite the fact that public financing is
universal through the tax system.

From figure 1 it can be seen that the expenditure on health as a % of GDP is only 5% in
India which is much lower than that of developed countries but is comparable with
China.

Considering that India is one of the rapidly growing economies, the share of Health in
GDP is quite low. This may be attributed to lack of awareness in general population of

49
health schemes and not understanding the significance of health protection.

Industry sources estimate that health care spending in India will increase by around 12%
annually over today’s value of US$23 billion (roughly 5.2% of GDP).

From figures 2 & 3 it can be seen that general government expenditure on health as % of
total expenditure on health and as a % of total government expenditure is much lower
than even China.

This shows that in India, Private health Expenditure dominates Government expenditure.
The government funds allocated to health care sector have always been low in relation to
the population of the country.

We see that Government of India has earmarked a meager 3% of total expenses on

Health
This may be understandable considering that we have very less social-security schemes
in
place. This is another sad observation considering that India’s is second most populated
country in the world with the maximum of people below the poverty line. More focus on

50
infrastructure development during the recent times may be the reason. Alternatively,
indirect support coming from private schemes can be a reason too. A more active
penetration into the rural areas can improve the percentage over time

Social security expenditure is also much lower compared to other countries except UK
This Chart can be interpreted in conjunction with Figure 2 above.This may be due the
bottlenecks we discussed above on Government Schemes.

51
This can be justified keeping in view the nascent stage of insurance industry in India
which is steadily yet confidently picking up. However, rural awareness and utilization of
these schemes are still disappointing.

Over 80% of health financing is private financing, much of which is out of pocket
payments and not by any pre-payment schemes. With insurance industry opening up and
non-life sector being detariffed, we can hope to see an influx of many competitive
products in the near future.

Given the health financing and demand scenario, health insurance has a wider scope in
present day situation in India. However, it requires careful and significant efforts to tap
Indian health insurance market with proper understanding and training

2.29.IMPLICATIONS OF PRIVATIZATION ON HEALTH INSURANCE

The privatization of insurance sector and constitution of IRDA envisage improving the
performance of state insurance sector in the country by increasing benefits from
competition in terms of lowered costs and increased level of consumer satisfaction.
However, the implications of the entry of private insurance companies in health sector
are not very clear. There are several contentious issues pertaining to development in this
sector and these need critical examination. Role of private insurance varies depending on
the economic, social and institutional settings in a country or a region.

Critics of private insurance argue that privatization will divert scarce resources away
form the pool, escalate health costs, allow cream skimming and adverse selection.

52
According to this view, private health insurance largely neglects the social aspect of
health protection. In the contrast, supporters of private health insurance claim that private
insurance can bridge financing gaps by offering consumers value for money and help
them avoid waiting lines, low quality care and under the table payments-problems often
observed when households can use public health facilities for free or participate in
mandatory social insurance schemes. Both the arguments are correct in the sense, private
health insurance can be valuable tool to compliment or supplement existing health
financing options only if they are carefully managed and adapted to local needs and
preferences.

India, with relatively developed economy and a strong middle class population, offers
most promising environment for private health insurance development. Currently, private
health insurance plays only a marginal role in health care systems but it is gradually
gaining importance.

Private health insurance is certainly not the only alternative or the ultimate solution to
address alarming health care challenges in India. However, it is an option that warrants-
and already receives-growing consideration by policy makers in the country. Thus the
question is not if this tool will be used in the future but whether it will be applied to the
best of its potential to serve the needs of the country’s health care system.

CHAPTER III: RESEARCH METHODOLOGY

3.1. REASEARCH PROCESS

53
3.2. LITRATURE STUDY

3.3. HOW TO FIND RIGHT LITRATURE

3.4. SOURCES OF DATA

RESEARCH METHODOLOGY

To be able to estimate the reliability of a report, the methods which it is based upon have

54
to be considered. Hence, this third chapter, methodology, will give the reader an insight
into my research process, selection and data collection.

3.1. REASEARCH PROCESS:

My work began with a literature study, followed by preparation for my data collection.
My data collection included the detail about various health insurance companies and their
schemes, which I analyzed. I drew conclusions from the analysis which gave me an
answer to our purpose. The different steps are separately presented below under
corresponding headlines.

3.2. LITRATURE STUDY:

The first part of the work with our dissertation was to carry out a literature study. I began
with a preliminary treatment of the literature.

3.3. HOW TO FIND RIGHT LITRATURE:

To be able to see which direction we wanted our empiric study to take we began by
considering the subject of the Indian Insurance Sector. To get the essential information for
the frame of reference I carried out a literature study,concentrating on relevant books and
articles. The literature was of scientific character and mainly concerned the topics like
insurance sector in India, role of health insurance,benefits of health insurance,history and
current scenario of health sector in India. In addition to the books, I used articles from
various well known journals.

A preliminary literature treatment

After acquiring literature needed, it can be beneficial to prioritize them and make

55
organized notes of the content before starting the work of the frame of references.I used
Patel & Davidson’s (1994) ideas of organizing the literature before carrying out the actual
text. Prioritizing the literature was followed by a thorough review of the highly prioritized
books. I made this by making a document each for all the literature with the highest rating.
In the documents I specified the main context,their angle of approach and for which areas
in our frame of reference it could be of interest. By doing this, we facilitated the
organization and production of the frame of reference.

When writing, one often realizes what information is lacking, what possibilities the
results actually give and what thoughts can be connected to them. Therefore, Johansson
& Svedner (1998) suggest that a draft should be made as soon as possible since it
stimulates the work and thinking of the researcher.

Keep a critical mind

I have tried to keep a critical approach to the theories and to get different angels on all
areas of interest in the process of change while reviewing the literature. Knowledge
critique is a way of adapting logical thoughts according to Eriksson & Wiedersheim-Paul
(1999). I ma aware that caution should be taken when using consultant literature since
it intends to be uncritical and written in a selling way. .

3.4. SOURCES OF DATA

The data collected for this project is basically secondary data which is collected from
Journal, Magzines, Internet and Books.As it is really a very difficult task to take views
of higher authorities of any company in such a less time and analyse their reponses.

56
 CHAPTER IV:
ANALYSIS OF
DATA

4.1. Health Insurance in India Opportunities, Challenges and Concerns

Health Insurance
Health insurance in a narrow sense would be ‘an individual or group purchasing health

57
care coverage in advance by paying a fee called premium.’ In its broader sense, it would
be any arrangement that helps to defer, delay, reduce or altogether avoid payment for
health care incurred by individuals and households. Given the appropriateness of this
definition in the Indian context, this is the definition, we would adopt. The health
insurance market in India is very limited covering about 10% of the total population. The
existing schemes can be categorized as:
 Voluntary health insurance schemes or private-for-profit schemes;
 Employer-based schemes;
 Insurance offered by NGOs / community based health insurance, and
 Mandatory health insurance schemes or government run schemes (namely ESIS,
CGHS).

4.2. Voluntary health insurance schemes or private-for-profit schemes

In private insurance, buyers are willing to pay premium to an insurance company that
pools people with similar risks and insures them for health expenses. The key distinction
is that the premiums are set at a level, which provides a profit to third party and provider
institutions. Premiums are based on an assessment of the risk status of the consumer (or
of the group of employees) and the level of benefits provided, rather than as a proportion
of the consumer’s income.

In the public sector, the General Insurance Corporation (GIC) and its four subsidiary
companies (National Insurance Corporation, New India Assurance Company, Oriental
Insurance Company and United Insurance Company) and the Life Insurance Corporation
(LIC) of India provide voluntary insurance schemes. The Life Insurance Corporation
offers Ashadeep Plan II and Jeevan Asha Plan II. The General Insurance Corporation
offers Personal Accident policy, Jan Arogya policy, Raj Rajeshwari policy, Mediclaim
policy, Overseas Mediclaim policy, Cancer Insurance policy, Bhavishya Arogya policy
and Dreaded Disease policy (Srivastava 1999 as quoted in Bhat R & Malvankar D,
2000)

58
Of the various schemes offered, Mediclaim is the main product of the GIC. The Medical
Insurance Scheme or Mediclaim was introduced in November 1986 and it covers
individuals and groups with persons aged 5 – 80 yrs. Children (3 months – 5 yrs) are
covered with their parents. This scheme provides for reimbursement of medical expenses
(now offers cashless scheme) by an individual towards hospitalization and domiciliary
hospitalization as per the sum insured. There are exclusions and pre-existing disease
clauses. Premiums are calculated based on age and the sum insured, which in turn varies
from Rs 15 000 to Rs 5 00 000. In 1995/96 about half a million Mediclaim policies were
issued with about 1.8 million beneficiaries (Krause Patrick 2000). The coverage for the
year 2000-01 was around 7.2 million.

Another scheme, namely the Jan Arogya Bima policy specifically targets the poor
population groups. It also covers reimbursement of hospitalization costs up to Rs 5 000
annually for an individual premium of Rs 100 a year. The same exclusion mechanisms
apply for this scheme as those under the Mediclaim policy. A family discount of 30% is
granted, but there is no group discount or agent commission. However, like the
Mediclaim, this policy too has had only limited success. The Jan Arogya Bima Scheme
had only covered 400 000 individuals by 1997.

The year 1999 marked the beginning of a new era for health insurance in the Indian
context. With the passing of the Insurance Regulatory Development Authority Bill
(IRDA) the insurance sector was opened to private and foreign participation, thereby
paving the way for the entry of private health insurance companies. The Bill also
facilitated the establishment of an authority to protect the interests of the insurance
holders by regulating, promoting and ensuring orderly growth of the insurance industry.
The bill allows foreign promoters to hold paid up capital of up to 26 percent in an Indian
company and requires them to have a capital of Rs 100 crore along with a business plan
to begin its operations.Currently, a few companies such as Bajaj Alliance, ICICI, Royal
Sundaram, and Cholamandalam among others are offering health insurance schemes. The
nature of schemes offered by these companies is described briefly.

59
  Bajaj Allianz: Bajaj Alliance offers three health insurance schemes namely,
Health Guard, Critical Illness Policy and Hospital Cash Daily Allowance Policy.

- The Health Guard scheme is available to those aged 5 to 75 years (not allowing entry
for those over 55 years of age), with the sum assured ranging from Rs 100 0000 to 500
000. It offers cashless benefit and medical reimbursement for hospitalization expenses
(pre-and post-hospitalization) at various hospitals across India (subject to exclusions and
conditions). In case the member opts for hospitals besides the empanelled ones, the
expenses incurred by him are reimbursed within 14 working days from submission of all
the documents. While pre-existing diseases are excluded at the time of taking the policy,
they are covered from the 5th year onwards if the policy is continuously renewed for four
years and the same has been declared while taking the policy for the first time. Other
discounts and benefits like tax exemption, health check-up at end of four claims free
year, etc. can be availed of by the insured.

- The Critical Illness policy pays benefits in case the insured is diagnosed as suffering
from any of the listed critical events and survives for minimum of 30 days from the date
of diagnosis. The illnesses covered include: first heart attack; Coronary artery disease
requiring surgery: stroke; cancer; kidney failure; major organ transplantation; multiple
sclerosis; surgery on aorta; primary pulmonary arterial hypertension, and paralysis.
While exclusion clauses apply, premium rates are competitive and high-sum insurance
can be opted for by the insured.

- The Hospital Cash Daily Allowance Policy provides cash benefit for each and every
completed day of hospitalization, due to sickness or accident. The amount payable per
day is dependant on the selected scheme. Dependant spouse and children (aged 3 months
– 21years) can also be covered under the Policy. The benefits payable to the
dependants are linked to that of insured. The Policy pays for a maximum single
hospitalization period of 30 days and an overall hospitalization period of 30/60
completed days per policy period per person regardless of the number of confinements to
hospital/nursing home per policy period.

60
 ICICI Lombard: ICICI Lombard offers Group Health Insurance Policy. This
policy is available to those aged 5 – 80 years, (with children being covered with
their parents) and is given to corporate bodies, institutions, and associations. The
sum insured is minimum Rs 15 000/- and a maximum of Rs 500 000/-. The
premium chargeable depends upon the age of the person and the sum insured
selected. A slab wise group discount is admissible if the group size exceeds 100.
The policy covers reimbursement of hospitalization expenses incurred for
diseases contracted or injuries sustained in India. Medical expenses up to 30 days
for Pre-hospitalization and up to 60 days for post-hospitalization are also
admissible. Exclusion clauses apply. Moreover, favourable claims experience is
recognized by discount and conversely, unfavourable claims experience attracts
loading on renewal premium. On payment of additional premium, the policy can
be extended to cover maternity benefits, pre-existing diseases, and reimbursement
of cost of health check-up after four consecutive claims-free years.

 Max New York Life Insurance: The leading private life insurance company -
Max New York Life Insurance Company Ltd. has launched 'lifeline' - a health
insurance product on Wednesday, 5th March 2008, across India. Now, the
company can boast of offering complete health and life insurance products across
ll regions in India. This newly launched health insurance product of Max New
York Life Insurance Company offers three groups of heath insurance solutions.

The Director Marketing Product Management and Corporate Affairs of Max New
York Life Insurance said that these three distinct heath insurance products are
meant to cover eventualities like hospitalization, surgery and critical illness of the
insured. He points out that these plans have been structured with features like
coverage for a wide range of ailments, no claim discount on revised premium for
a healthy life, a fixed premium for a five-year term, free second opinion from the
best health care institutions of India on detection of illness. Further, it also has

61
provision for a free telephonic medical helpline across India.

The hospitalization - is covered by "Medicash plan", which is meant to provide a

fixed amount of cash benefit on a day-to-day basis during the entire period of
hospitalization of the insured. The Medicash plan would also cover expenses for
admission in ICU, lump sum benefits against an unlimited number of surgeries
and recuperation benefits.

The second plan of the newly launched health insurance of Max New York Life
Insurance, is the "Wellness Plan", which is a more attractive one and covers
'critical illness' like cancer, alzheimers, heart ailments, liver disease, deafness,
permanent disability, etc. The Wellness plan covers thirty eight critical illnesses,
which is the highest number of illness covered under one insurance plan in India
by any insurance company.

The third health insurance policy of Max New York Life Insurance is a term plus
health protection plan known as "Safety Net". This provides coverage to the
insured person for any losses incurred by him/her in eventualities like critical
illness, accident, disability and death.

With 21 lakh life insurance policies and with an assured sum of Rs 62,000 crores
in its kitty Max Life Insurance wishes to achieve business at least five percent
higher than it did in the last financial year. The company also announced that it
would go for an expansion drive and would also increase the number of branch
offices in Tamil Nadu within the fiscal year 2008-2009. Max New York Life
Insurance Company is one of the fastest growing life insurance companies in
India and is the first life insurance company of India to be awarded with ISO
9001:2000 certification. This Rs 907.4 crores insurance company is one of the
most respected companies in India. After making strong inroads into the Indian
life insurance market with a strong product portfolio the company is expected to
do well with its new product line in the Indian health insurance sector as well.

62
 Royal Sundaram Group: The Shakthi Health Shield policy offered by the Royal
Sundaram group can be availed by members of the women’s group, their spouses
and dependent children. No age limits apply. The premium for adults aged up to
45 years is Rs 125 per year, for those aged more than 45 years is Rs 175 per year.
Children are covered at Rs 65 per year. Under this policy, hospital benefits up to
Rs 7 000 per annum can be availed, with a limit per claim of Rs 5 000. Other
benefits include maternity benefit of Rs 3 000 subject to waiting period of nine
months after first enrolment and for first two children only. Exclusion clauses
apply (Ranson K & Jowett M, 2003)

 Cholamandalam General Insurance: The benefits offered (in association with

the Paramount Health Care, a re-insurer) in case of an illness or accident resulting
in hospitalization, are cash-free hospitalization in more than 1 400 hospitals
across India, reimbursement of the expenses during pre- hospitalization (60 days
prior to hospitalization) and post- hospitalization (90 days after discharge) stages
of treatment. Over 130 minor surgeries that require less than 24 hours
hospitalization under day care procedure are also covered. Extra health covers
like general health and eye examination, local ambulance service, hospital daily
allowance, and 24 hours assistance can be availed of.Exclusion clauses apply.

 Employer-based schemes:Employers in both the public and private sector offers

employer-based insurance schemes through their own employer-managed
facilities by way of lump sum payments, reimbursement of employee’s health
expenditure for outpatient care and hospitalization, fixed medical allowance,
monthly or annual irrespective of actual expenses, or covering them under the
group health insurance policy. The railways, defence and security forces,
plantations sector and mining sector provide medical services and / or benefits to
its own employees. The population coverage under these schemes is minimal,
about 30-50 million people.

63
4.3. Insurance offered by NGOs / community-based health insurance

Community-based funds refer to schemes where members prepay a set amount each year
for specified services. The premia are usually flat rate (not income-related) and therefore
not progressive. Making profit is not the purpose of these funds, but rather improving
access to services. Often there is a problem with adverse selection because of a large
number of high-risk members, since premiums are not based on assessment of individual
risk status. Exemptions may be adopted as a means of assisting the poor, but this will
also have adverse effect on the ability of the insurance fund to meet the cost of benefits.

Community-based schemes are typically targeted at poorer populations living in

communities, in which they are involved in defining contribution level and collecting
mechanisms, defining the content of the benefit package, and / or allocating the schemes,
financial resources (International Labour Office Universities Programme 2002 as quoted
in Ranson K & Acharya A, 2003). Such schemes are generally run by trust hospitals or
nongovernmental organizations (NGOs). The benefits offered are mainly in terms of
preventive care, though ambulatory and in-patient care is also covered. Such schemes
tend to be financed through patient collection, government grants and donations.
Increasingly in India, CBHI schemes are negotiating with the for- profit insurers for the
purchase of custom designed group insurance policies. However, the coverage of such
schemes is low, covering about 30-50 million (Bhat, 1999). A review by Bennett, Cresse
et al. (as quoted in Ranson K & Acharya A, 2003) indicates that many community-based
insurance schemes suffer from poor design and management, fail to include the poorest-
of-the- poor, have low membership and require extensive financial support. Other issues
relate to sustainability and replication of such schemes.

Some examples of community-based health insurance schemes are discussed herein.

64
 Self-Employed Women’s Association (SEWA), Gujarat: This scheme
established in 1992, provides health, life and assets insurance to women working
in the informal sector and their families. The enrolment in the year 2002 was 93
000. This scheme operates in collaboration with the National Insurance Company
(NIC). Under SEWA’s most popular policy, a premium of Rs 85 per individual is
paid by the woman for life, health and assets insurance. At an additional payment
of Rs 55, her husband too can be covered. Rs 20 per member is then paid to the
National Insurance Company (NIC) which provides coverage to a maximum of
Rs 2 000 per person per year for hospitalization. After being hospitalized at a
hospital of one’s choice (public or private), the insurance claim is submitted to
SEWA. The responsibility for enrolment of members, for processing and
approving of claims rests with SEWA. NIC in turn receives premiums from
SEWA annually and pays them a lumpsum on a monthly basis for all claims
reimbursed. (Ranson K & Acharya A, 2003).

 Another CBHI scheme located in Gujarat, is that run by the Tribhuvandas

Foundation (TF), Anand. This was established in 2001,with the membership
being restricted to members of the AMUL Dairy Cooperatives. Since then, over 1
00 000 households have been enrolled under this scheme, with the TF functioning
as a third party insurer.

 The Mallur Milk Cooperative in Karnataka established a CBHI scheme in 1973.

It covers 7 000 people in three villages and outpatient and inpatient health care
are directly provided.

 A similar scheme was established in 1972 at Sewagram, Wardha in Maharashtra.

This scheme covers about 14 390 people in 12 villages and members are provided
with outpatient and inpatient care directly by Sewagram.

 The Action for Community Organization, Rehabilitation and Development

(ACCORD), Nilgiris, Tamil Nadu was established in 1991. Around 13 000

65
 Adivasis (tribals) are covered under a group policy purchased from New India
Assurance.

 Another scheme located in Tamil Nadu is Kadamalai Kalanjia Vattara Sangam

(KKVS), Madurai. This was established in 2000 and covers members of
women’s self-help groups and their families. Its enrolment in 2002 was around 5
710, with the KKVS functioning as a third party insurer.

 The Voluntary Health Services (VHS), Chennai, Tamil Nadu was established in
1963. It offers sliding premium with free care to the poorest. The benefits include
discounted rates on both outpatient and inpatient care, with the VHS functioning
as both insurer and health care provider. In 1995, its membership was 124 715.
However, this scheme suffers from low levels of cost recovery due to problems of
adverse selection.

 Raigarh Ambikapur Health Association (RAHA), Chhatisgarh was established

in 1972, and functions as a third party administrator. Its membership in the year
1993 was 72 000.

4.4. Social Insurance or mandatory health insurance schemes or government

run schemes (namely the ESIS, CGHS)
Social insurance is an earmarked fund set up by government with explicit benefits in
return for payment. It is usually compulsory for certain groups in the population and the
premiums are determined by income (and hence ability to pay) rather than related to
health risk. The benefit packages are standardized and contributions are earmarked for
spending on health services The government-run schemes include the Central
Government Health Scheme (CGHS) and the Employees State Insurance Scheme (ESIS).

 Central Government Health Scheme (CGHS)

Since 1954, all employees of the Central Government (present and retired); some

66
autonomous and semi-government organizations, MPs, judges, freedom fighters and
journalists are covered under the Central Government Health Scheme (CGHS). This
scheme was designed to replace the cumbersome and expensive system of
reimbursements (GOI, 1994). It aims at providing comprehensive medical care to the
Central Government employees and the benefits offered include all outpatient facilities,
and preventive and promotive care in dispensaries. Inpatient facilities in government
hospitals and approved private hospitals are also covered. This scheme is mainly funded
through Central Government funds, with premiums ranging from Rs 15 to Rs 150 per
month based on salary scales. The coverage of this scheme has grown substantially with
provision for the non-allopathic systems of medicine as well as for allopathy.
Beneficiaries at this moment are around 432 000, spread across 22 cities.

The CGHS has been criticized from the point of view of quality and accessibility.
Subscribers have complained of high out-of-pocket expenses due to slow reimbursement
and incomplete coverage for private health care (as only 80% of cost is reimbursed if
referral is made to private facility when such facilities are not available with the CGHS).

 Employee and State Insurance Scheme (ESIS)

The enactment of the Employees State Insurance Act in 1948 led to formulation of the
Employees State Insurance Scheme. This scheme provides protection to employees
against loss of wages due to inability to work due to sickness, maternity, disability and
death due to employment injury. It offers medical and cash benefits, preventive and
promotive care and health education. Medical care is also provided to employees and
their family members without fee for service. Originally, the ESIS scheme covered all
power-using non-seasonal factories employing 10 or more people. Later, it was extended
to cover employees working in all non-power using factories with 20 or more persons.
While persons working in mines and plantations, or an organization offering health
benefits as good as or better than ESIS, are specifically excluded. Service establishments
like shops, hotels, restaurants, cinema houses, road transport and news papers printing
are now covered. The monthly wage limit for enrolment in the ESIS is Rs. 6 500, with a
prepayment contribution in the form of a payroll tax of 1.75% by employees, 4.75% of

67
employees' wages to be paid by the employers, and 12.5% of the
total expenses are borne by the state governments. The number of beneficiaries is over 33
million spread over 620 ESI centres across states. Under the ESIS, there were 125
hospitals, 42 annexes and 1 450 dispensaries with over 23 000 beds facilities. The
scheme is managed and financed by the Employees State Insurance Corporation (a public
undertaking) through the state governments, with total expenditure of Rs 3 300 million or
Rs 400/- per capita insured person.

The ESIS programme has attracted considerable criticism. A report based on patient
surveys conducted in Gujarat (Shariff, 1994 as quoted in Ellis R et a, 2000) found that
over half of those covered did not seek care from ESIS facilities. Unsatisfactory nature of
ESIS services, low quality drugs, long waiting periods, impudent behaviour of personnel,
lack of interest or low interest on part of employees and low awareness of ESI
procedures, were some of the reasons cited.

 Other Government Initiatives

Apart from the government-run schemes, social security benefits for the disadvantaged
groups can be availed of, under the provisions of the Maternity Benefit (Amendment)
Act 1995, Workmen’s Compensation (Amendment) Act 1984, Plantation Labour Act
1951, Mine Mines Labour Welfare Fund Act 1946, Beedi Workers Welfare Fund Act
1976 and Building and other Construction Workers (Regulation of Employment and
Conditions of Service) Act, 1996.

The Government of India has also undertaken initiatives to address issues relating to
access to public health systems especially for the vulnerable sections of the society. The
National Health Policy 2002 acknowledges this and aims to evolve a policy structure,
which reduces such inequities and allows the disadvantaged sections of the population a
fairer access to public health services. Ensuring more equitable access to health services
across the social and geographical expanse of the country is the main objective of the
policy. It also seeks to increase the aggregate public health investment through increased
contribution from the Central as well as state governments and encourages the setting up

68
of private insurance instruments for increasing the scope of coverage of the secondary
and tertiary sector under private health insurance packages. The government envisages an
increase in health expenditure as a % of GDP from existing 0.9% to 2.0 % by 2010 and
an increase in the share of central grants from the existing 15% to constitute at least 25%
of total public health spending by 2010. The State government spending for health in turn
would increase from 5.5% to 7% of the budget by 2005, to be further increased to 8% by
2010.

The National Population Policy (NPP) 2000, envisages the establishment of a family
welfare-linked health insurance plan. As per this plan, couples living below the poverty
line who undergo sterilization with not more than two living children would be eligible
for insurance. Under this scheme, the couple along with their children would be covered
for hospitalization not exceeding Rs 5 000 and a personal accident insurance cover for
the spouse undergoing sterilization. The Institute of Health Systems (IHS), Hyderabad
has been entrusted the responsibility of operationalizing the mandate of the NPP 2000.
The initial scheme proposed by the HIS was discussed at a workshop in June 2003. The
consensus at the meeting was that the scheme, needed further improvement prior to its
implementation even as a pilot project.

In keeping with the recommendations of the Tenth Five Year Plan and the National
Health Policy (NHP) 2002, the Department of Family Welfare is also proposing to
commission studies in eight states covering eight districts, to generate district-specific
data, which is essential for conceptualization of a reasonable and financially viable
insurance scheme.

The current plan – the Tenth Five Year Plan (2002-07) - also focuses on exploring
alternative systems of health care financing including health insurance so that essential,
need-based and affordable health care is available to all. The urgent need to evolve,
implement and evaluate an appropriate scheme for health financing for different income
groups is acknowledged. In the past, the government has tried to ensure that the poor get
access to private health facilities through subsidy in the form of duty exemptions and

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other such benefits. Social health insurance for families living below the poverty line has
been suggested as a mechanism for reducing the adverse economic consequences of
hospitalization and treatment for chronic ailments requiring expensive and continuous
care.

In the budget for the year 2002-2003, an insurance scheme called Janraskha was
introduced, with the aim of providing protection to the needy population. With a
premium of Re 1/- per day, it ensured indoor treatment up to Rs 3 000 per year at
selected and designated hospitals and outpatient treatment up to Rs 2 000 per year at
designated clinics, including civil hospitals, medical colleges, private trust hospitals and
other NGO-run institutions. A few states have started implementing this scheme under
pilot phase.
In the budget for the period 2003-2004, another initiative of community-based health
insurance has been announced. This scheme aims to enable easy access of less
advantaged citizens to good health services, and to offer health protection to them. This
policy covers people between the age of three months to 65 years. Under this scheme, a
premium equivalent to Re 1 per day (or Rs 365 per year) for an individual, Rs 1.50 per
day for a family of five (or Rs 548 per year), and Rs 2 per day for a family of seven (or
Rs 730 per year), would entitle them to get reimbursement of medical expenses up to
Rs 30 000 towards hospitalization, a cover for death due to accident for Rs 25000 and
compensation due to loss of earning at the rate of Rs 50 per day up to a maximum of 15
days. The government would contribute Rs 100 per year towards the annual premium, so
as to ensure the affordability of the scheme to families living below the poverty line. The
implementation of this scheme rests with the four public sector insurance companies.
The government also offers assistance by way of Illness Assistance Funds, which have
been set up by the Ministry of Health and Family Welfare at the national level and in a
few states. State Illness Assistance Funds exist in Andhra Pradesh, Bihar, Goa, Gujarat,
Himachal Pradesh, Jammu and Kashmir, Karnataka, Kerala, Madhya Pradesh,
Maharashtra, Mizoram, Rajasthan, Sikkim, Tamil Nadu, Tripura, West Bengal, NCT of
Delhi and UT of Pondicherry. A National Illness Assistance Fund (NIAF) was set up in
1997, with the scheme being reviewed in January 1998. Through this, three Central

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Government hospitals and three national-level institutes have been sanctioned
Rs 10 00 000 each at a time from the NIAF to provide immediate financial assistance to
the extent of Rs 25 000 per case to poor patients living below the poverty line and who
are undergoing treatment in these hospitals / institutions. Thereafter the scheme has been
extended to few other institutes across the country and provides Rs 25 000 – Rs 50 000
per case.

4.5. Health insurance initiatives by State Governments

In the recent past, various state governments have begun health insurance initiatives. For
instance, the Andhra Pradesh government is implementing the Aarogya Raksha Scheme
since 2000, with a view to increase the utilization of permanent methods of family
planning by covering the health risks of the acceptors. All people living below the
poverty line and those who accept permanent methods of family planning are eligible to
be covered under this scheme. The Government of Andhra Pradesh pays a premium of Rs
75 per acceptor. The benefits to be availed of, include hospitalization costs up to Rs.
4000 per year for the acceptor and for his / her two children for a total period of five
years from date of the family planning operation. The coverage is for common illnesses
and accident insurance benefits are also offered. The hospital bill is directly reimbursed
by the Insurance Company, namely the New India Assurance Company.

The Government of Goa along with the New India Assurance Company in 1988
developed a medical reimbursement mechanism. This scheme can be availed by all
permanent residents of Goa with an income below Rs 50 000 per annum for
hospitalization care, which is not available within the government system. The non-
availability of services requires certification from the hospital Dean or Director Health
Services. The overall limit is Rs 30 000 for the insured person for a period of one year.
A pilot project on health insurance was launched by the Government of Karnataka and
the UNDP in two blocks since October 2002. The aim of the project was to develop and
test a model of community health financing suited for rural community, thereby
increasing the access to medical care of the poor. The beneficiaries include the entire
population of these blocks. The premium is Rs 30 per person per year, with the

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Government of Karnataka subsidizing the premium of those below poverty line and those
belonging to Scheduled Castes/ Scheduled Tribes. This premium entitles them to
hospitalization coverage in the government hospitals up to a maximum of Rs 2 500 per
year, including hospitalization for common illnesses, ambulance charges, loss of wages
at Rs. 50 per day as well as drug expenses at Rs 50 per day. Reimbursements are made to
an insurance fund which has been set up by the NGO / PRI with the support of UNDP.
The Government of Kerala is planning to launch a pilot project of health insurance for
the 30% families living below the poverty line. The scheme would be associated with a
government insurance company. Currently, negotiations are under way with the IRA to
seek service tax exemption. The proposed premium is Rs 250 plus 5% tax. The
maximum benefit per family would be Rs 20 000. The amount for the premium would be
recovered from the drug budget (Rs 100), the PRI (Rs 100) and from the beneficiary (Rs
62.50) while the benefits available would include cover for hospitalization, deliveries
involving surgical procedures (either to the mother or the newborn). Instead of
payment by the beneficiary, Smart Card facility would be offered. This scheme would be
applicable in 216 government hospitals.

CHAPTER V: SUMMARY AND CONCLUSION

The preceding sections of this paper present the health insurance scenario in India. Given

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the situation, there are few issues of concern or barriers towards implementing a social
health insurance scheme in India. These are enumerated below along with the possible
way ahead.

India is a low-income country with 26% population living below the poverty line, and
35% illiterate population with skewed health risks. Insurance is limited to only a small
proportion of people in the organized sector covering less than 10% of the total
population. Currently, there no mechanism or infrastructure for collecting mandatory
premium among the large informal sector. Even in terms of the existing schemes, there is
insufficient and inadequate information about the various schemes. Data gaps also
prevail. Much of the focus of the existing schemes is on hospital expenses. There
continues to be lack of awareness among people about health insurance. In spite of
existing regulation in some States, the private sector continues to operate in an almost
unhindered manner. The growth of health insurance increases the need for licensing and
regulating private health providers and developing specific criteria to decide upon
appropriate services and fees.Health insurance per se, suffers from problems like adverse
selection, moral hazard, cream-skimming and high administrative costs. This is coupled
with the fact that in the absence of any costing mechanisms, there is difficulty in
calculating the premium. There is also a need to evolve criteria to be used for deciding
upon target groups, who would avail of the SHI scheme/s and also to
address issues relating to whether indirect costs would be included in health insurance.
Health insurance can improve access to good quality health care only if it is able to
provide for health care institutions with adequate facilities and skilled personnel at
affordable cost.

Given this scenario, the challenge, then, for Indian policy-makers is to find ways to
improve upon the existing situation in the health sector and to make equitable, affordable
and quality health care accessible to the population, especially the poor and the
vulnerable sections of the society. It is in a way inevitable that the state reforms its public
health delivery system and explores other social security options like health insurance.
Implementing regulations would be one, but by no means the best mechanism to contain

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provider behaviour and costs. This can only be done by developing mechanisms where
government and households can together pool their funds. This could be one way of
controlling provider behaviour.

There is an urgent need to document global and Indian experiences in social health
insurance. Different financing options would need to be developed for different target
groups. The wide differentials in the demographic, epidemiological status and the
delivery capacity of health systems are a serious constraint to a nationally mandated
health insurance system. Given the heterogeneity of different regions in India and the
regional specifications, one would need to undertake pilot projects to gather more
information about the population to be targeted under an insurance scheme and develop
options for different population groups. Health policy-makers and health systems
research institutions, in collaboration with economic policy study institutes, need to
gather information about the prevailing disease burden at various geographical regions;
to develop standard treatment guidelines, to undertake costing of health services for
evolving benefit packages to determine the premium to be levied and subsidies to be
given; and to map health care facilities available and the institutional mechanisms which
need to be in place, for implementing health insurance schemes. Skill- building for the
personnel involved, and capacity-building of all the stakeholders involved, would be a
critical component for ensuring the success of any health insurance programme.

The success of any social insurance scheme would depend on its design,the
implementation and monitoring mechanisms which would be set in place and it would
also call for restructuring and reforming the health system, and developing the necessary
prerequisites to ensure its success.

CHAPTER VI: SUGGESTIONS AND RECCOMENDATIONS

Health insurance is like a knife. In the surgeon’s hand it can save the patient, while in the

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hands of the quack, it can kill. Health insurance is going to develop rapidly in future. The
main challenge is to see that it benefits the poor and the weak in terms of better coverage
and health services at lower costs without negative aspects of cost increase and overuse
of procedures and technology in provision of health care.

In India has limited experience of health insurance. Given that government has
liberalized the insurance industry, health insurance is going to develop rapidly in future.
The challenge is to see that it benefits the poor and the weak in terms of better coverage
and health services at lower costs without the negative aspects of cost increase and over
use of procedures and technology in provision of health care. The experience from other
places suggest that ifhealth insurance is left to the private market it will only cover those
which have substantial ability to pay leaving out the poor and making them more
vulnerable. Hence India should proactively make efforts to develop Social Health
Insurance patterned after the German model where there is universal coverage, equal
access to all and cost controlling measures such as prospective per capita payment to
providers. Given that India does not have large organized sector employment the only
option for such social health insurance is to develop it through co-operatives, associations
and unions. The existing health insurance programmes such as ESIS and Mediclaim also
need substantial reforms to make them more efficient and socially useful. Government
should catalyze and guide development of such social health insurance in India.
Researchers and donors should support such development.

BIBILIOGRAPHY

 Gumber A., Kulkarni V. 2000. Health Insurance for Informal Sector: Case Study
of Gujarat. Economic and Political Weekly, Sep. 30.

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 Dholakia R. Economic reforms: Implications for Health Insurance. Presentation at
One day workshop on 'Health Insurance in India'. Indian Institute of
Management, Ahmedabad. Oct. 30, 1999.
 Ellis RP., Alam M, Gupta I. 1996 Health Insurance in India: Prognosis and
Prospectus. Boston University: Boston and Institute of Economic Growth: Delhi.
December 18.
 IIMA 1999. Indian Institute of Management, Ahmedabad. Report of the one day
workshop on 'Health Insurance in India'. Oct. 30, 1999.
 WHO statistics
 IRDA journals
 Directorate General Of Health services
 Health Policy Challenges for India: Private Health Insurance and Lessons from
the international Experience by Ajay Mahal
 Health Insurance in India by Sujatha Rao
 Different Countries, Different Needs: The Role of Private Health Insurance in
Developing Countries by Denis Drechsler, Johannes Jütting
 www.google.com
 www.dogpile.cpm

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