India has regulators in different sectors, and it can make a difference by having one more that focuses on health insurance. Since the formation of IRDAI, there has been a significant growth of health insurance in India. Per the General Insurance Council report for FY23-24, the gross premium collected under the health portfolio is ₹1.09-lakh crore. However, around 40 per cent of this is individual retail policies, indicating the extent of penetration that is still required.
Around 40 crore people still do not have access to even government insurance schemes. There is, therefore, the need for a mechanism to cover them as well.
A Health Insurance Development and Regulatory Authority could initiate lot of research and analysis, and that becomes important especially as India is now more of a services economy and is expecting to reap the demographic dividend due to its comparatively younger population. Unlike other regulators in the finance sector like PFRDA, wherein the offerings are only linked to finance, the health regulator has different challenge because of its interface with healthcare providers — doctors, paramedics, bodies like the National Medical Commission, etc.
So, conflicts are possible in certain areas which need to be addressed upfront through a resolution framework related to regulatory jurisdiction, pricing, accreditation standards of hospitals and the like.
Freedom to innovate
When a separate health insurance regulator is in place, there’s freedom to come out with innovative ideas. For example, the Health Insurance Authority of Ireland came out with an innovative model called Lifetime Community Rating to encourage people to join the health insurance market at a younger age. It helps balance out the cost of health insurance for everyone because younger people usually make fewer claims compared to older claimants who may use health services often.
The community rating system generally bases premiums on the average cost of the risk to insure all persons on a policy rather than basing the premium on the risk it may cost to insure each individual person on the basis of their age, gender, health risk status or prior history of cover.
Thanks to the Digital India initiative, there is abundance of data from various service sectors. It should also be noted that National Medical Commission has set deadlines for hospitals for digitalising the workflows, implementation of hospital management systems, etc. Also, there are already well-established institutions like Central Bureau of Health Intelligence to provide requisite data.
Use of AI
Thanks to data analytics tools that are available either free or at affordable rates for research institutions and the growth of machine learning models, it is possible to come out with innovative products through financial engineering. Data analytics and AI can also be used for up-selling, risk management, claim processing for the masses, controlling fraud, and managing claims efficiently through health insurance exchange.
As part of the redressal mechanism, a separate health insurance ombudsman could be established, given the expected volume of health insurance conflicts. Digitizing the office of the ombudsman will inspire confidence in the common man that claims will not be rejected unnecessarily and there is an easy and faster approach for resolution.
Setting up of a health insurance regulator will, therefore, pay dividends.
Saravanan is a professor of finance and accounting at IIM Tiruchirappalli and Jayaprakash is co-founder of Nanobi Analytics. View are personal