Over 10 yrs, only about 5% of individuals covered under retail health insurance make one or more claims. Yet, this small group accounts for nearly 90% of all hospitalisation costs, with claims often exceeding 10x premiums they have paid. For this system to function, the remaining 95% must continue paying premiums year after year, typically without making a claim.
Hospitals, however, largely interact only with the 5%. The real challenge lies in ensuring that the 95% continue to participate consistently, which is difficult. In many markets, this is addressed through mandatory participation or employer-provided group coverage. Co-payments, deductibles and tiered hospital networks are not customer favourites in India. Yet, they are essential for long-term sustainability.
Even high-income countries with universal healthcare incorporate such mechanisms to manage costs and ensure system stability.
In the Netherlands, individuals are subject to a mandatory annual deductible, while Switzerland requires residents to choose deductibles. Co-payments are even more widespread.
In France, patients bear around 20% of treatment costs, while Japan standardises co-payments at about 30% for most services.
Systems in Norway and New Zealand also include co-payment models, particularly in primary care.
Singapore has mandated minimum deductibles and co-payments in private plans to prevent 'first-dollar' coverage and ensure some level of cost-sharing.
When customers share a portion of cost, it discourages unnecessary utilisation and brings discipline into the system, which, in turn, helps keep premiums lower. India's regulator can play a role in encouraging such structures, as they reduce abuse of the system through shared participation. At the same time, greater awareness around co-payments and deductibles is essential for wider acceptance.
Three principles are paramount for building consumer trust in India:
Honouring claims
An insurer has the right to select its customers and conduct thorough due diligence before issuing a policy. It can impose waiting periods, deductibles, co-pays, exclusions and even a moratorium period for observation. But once this period is over, after 2-3 yrs, a claim must be honoured, unless there is fraud.
IRDAI has taken progressive measures, reinforcing the importance of claim certainty. The focus, therefore, must shift to strict underwriting at the point of sale, not at the point of claim. If insurers are rigorous in selecting risks upfront, it builds confidence in the system.
Hospitals must be carefully empanelled. But once selected, their decisions should not be questioned at the time of claim. Medical protocols can be agreed upon between insurers and hospitals in advance, so that customers do not face uncertainty. Once a policy is issued and the moratorium period is over, there should be no ambiguity at the time of claim.
Stopping mis-selling
It is best to focus on material mis-selling, which is largely concentrated in the savings segment of the life insurance industry. Three steps can reduce mis-selling:
These key facts can easily be presented in simple language, with mandatory customer acknowledgment. This will build trust.
Insurers must have the financial strength to honour their commitments. Strong, risk-based solvency norms are essential to ensure that claims can be paid, especially in periods of stress. The shift towards a risk-based solvency framework is no longer optional but an urgent priority.
Beyond these core principles, the approach to regulation needs careful consideration. There is a strong case for principle-based regulation, where guard rails are defined but operational flexibility is left to market participants.
Overly detailed, rule-based frameworks often lead to micromanagement, inefficiencies and unintended consequences. When rules are too prescriptive, people optimise for the rule, not the outcome. In insurance, this distinction becomes critical. It's reasonable for regulation to define broad guard rails around, say, how premiums are collected, managed and deployed. A principle-based approach allows the ecosystem to allocate resources more effectively within defined boundaries, encouraging better outcomes.
Healthy competition thrives when players are trusted to operate within well-defined boundaries. So, the role of regulation is to create a level playing field with guard rails, while allowing companies the freedom to innovate, compete and differentiate. Over time, this ensures that the best models emerge and scale, delivering better outcomes for customers and the system.
Hospitals, however, largely interact only with the 5%. The real challenge lies in ensuring that the 95% continue to participate consistently, which is difficult. In many markets, this is addressed through mandatory participation or employer-provided group coverage. Co-payments, deductibles and tiered hospital networks are not customer favourites in India. Yet, they are essential for long-term sustainability.
Even high-income countries with universal healthcare incorporate such mechanisms to manage costs and ensure system stability.
In the Netherlands, individuals are subject to a mandatory annual deductible, while Switzerland requires residents to choose deductibles. Co-payments are even more widespread.
In France, patients bear around 20% of treatment costs, while Japan standardises co-payments at about 30% for most services.
Systems in Norway and New Zealand also include co-payment models, particularly in primary care.
Singapore has mandated minimum deductibles and co-payments in private plans to prevent 'first-dollar' coverage and ensure some level of cost-sharing.
When customers share a portion of cost, it discourages unnecessary utilisation and brings discipline into the system, which, in turn, helps keep premiums lower. India's regulator can play a role in encouraging such structures, as they reduce abuse of the system through shared participation. At the same time, greater awareness around co-payments and deductibles is essential for wider acceptance.
Three principles are paramount for building consumer trust in India:
Honouring claims
An insurer has the right to select its customers and conduct thorough due diligence before issuing a policy. It can impose waiting periods, deductibles, co-pays, exclusions and even a moratorium period for observation. But once this period is over, after 2-3 yrs, a claim must be honoured, unless there is fraud.
IRDAI has taken progressive measures, reinforcing the importance of claim certainty. The focus, therefore, must shift to strict underwriting at the point of sale, not at the point of claim. If insurers are rigorous in selecting risks upfront, it builds confidence in the system.
Hospitals must be carefully empanelled. But once selected, their decisions should not be questioned at the time of claim. Medical protocols can be agreed upon between insurers and hospitals in advance, so that customers do not face uncertainty. Once a policy is issued and the moratorium period is over, there should be no ambiguity at the time of claim.
Stopping mis-selling
It is best to focus on material mis-selling, which is largely concentrated in the savings segment of the life insurance industry. Three steps can reduce mis-selling:
- One must not be allowed to project returns greater than expected internal rate of return.
- Surrender charges must be clearly and plainly disclosed.
- Coverage benefits must be understood.
These key facts can easily be presented in simple language, with mandatory customer acknowledgment. This will build trust.
Insurers must have the financial strength to honour their commitments. Strong, risk-based solvency norms are essential to ensure that claims can be paid, especially in periods of stress. The shift towards a risk-based solvency framework is no longer optional but an urgent priority.
Beyond these core principles, the approach to regulation needs careful consideration. There is a strong case for principle-based regulation, where guard rails are defined but operational flexibility is left to market participants.
Overly detailed, rule-based frameworks often lead to micromanagement, inefficiencies and unintended consequences. When rules are too prescriptive, people optimise for the rule, not the outcome. In insurance, this distinction becomes critical. It's reasonable for regulation to define broad guard rails around, say, how premiums are collected, managed and deployed. A principle-based approach allows the ecosystem to allocate resources more effectively within defined boundaries, encouraging better outcomes.
Healthy competition thrives when players are trusted to operate within well-defined boundaries. So, the role of regulation is to create a level playing field with guard rails, while allowing companies the freedom to innovate, compete and differentiate. Over time, this ensures that the best models emerge and scale, delivering better outcomes for customers and the system.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
Yashish Dahiya
Yashish Dahiya is chairman-group CEO, PB Fintech