The Centre’s flagship National Health Protection Scheme to cover over 10 crore poor families providing coverage up to ₹5 lakh, will benefit public insurers and certain private insurance players active in mass health programmes.

The Budget also proposes to merge three public sector general insurance companies — National Insurance Company Ltd, United India Assurance Company Limited and Oriental India Insurance Company — which will be listed sebsequently. This will bring down costs, improve scale and usher in greater competition in the space.

While clarity on the contours of the National Health Protection Scheme is awaited, industry players feel that it will be on the lines of the existing Rashtriya Swasthya Bima Yojana (RSBY).

Contours of health scheme

Under this, a beneficiary pays a premium of ₹30 for a ₹30,000 cover. The balance (about ₹370) is borne by the Centre and the State together. Insurance players will participate in the tender process for each state and the lowest bid is awarded the contract.

If the Centre’s new scheme is on similar lines, then a beneficiary may have to pay ₹500 for a ₹5 lakh cover.

The premium may work out cheaper as the probability of lower income households using up the full cover may be less. However, for players active in this space, this opens up big opportunity as the scheme gathers scale.

What for players

For public insurance players such as New India Assurance, United India, National and Oriental National and select private insurance players such as Reliance General, the Centre’s new health scheme offers immense opportunity. For Reliance General mass health forms about 44 per cent of total health GDPI (Gross Direct Premium Income).

That said, vagaries in the mass health business and unattractive pricing has seen other private players, turn cautious to this segment. Hence not all players may find it viable to bid for the Centre’s mega health protection scheme. For instance, in FY17 Reliance General was not appointed to provide policies under RSBY for the state of Kerala which impacted growth; overall health GDPI fell by a sharp 36 per cent in FY17.

Also sustainable benefits will flow in only when some of the existing issues are ironed out.

First, there must be smooth flow of subsidy without undue delay, both from the Centre and the State.

Next, claims settlement can be smoother only if more number of hospitals are empanelled which, given the segment these mass health programmes cater to, will be long-drawn. Of the ₹1,000 crore budgeted allocation to RSBY in FY-18, only ₹470 crore was used, according to revised estimates, clearly implying that scaling up such schemes will take time.

For FY-19, the Centre has allocated ₹2,000 crore for RSBY.

Sound move

New India Assurance was listed last year. But steep valuations and weak operating metrics have seen the stock trade way below its listing price of ₹800 (now at ₹667).

The Budget proposing to merge the remaining three public insurers is a sound move, as it will help them increase scale and cut costs.

In comparison to private players, public insurers have weak financials. Each of the three public insurers proposed to be merged have a steep combined ratio of 134-148 per cent (FY17). Combined ratio measures the incurred losses and expenses in relation to the total premiums. For top private general insurance players, such as ICICI Lombard, Bajaj Allianz and HDFC Ergo combined ratio is a much lower 97-104 per cent.