Tweaking insurance to widen its reach

The Insurance Regulatory and Development Authority (IRDA) of India has eased rules that were clogging up the capital flow to the industry, the key reason for lagging penetration at India’s current per capita income.

The changes have eased private equity investment in insurance companies, raised the threshold for being classified as promoter, lowered the limit for dilution of promoter holdings, widened the scope of marketing relationships, lowered solvency requirements and enhanced access to debt.

These measures were overdue, but fall short of what is needed for a spurt in capital infusion in the sector: unlimited access to foreign capital. The requirement of reluctant local partners in insurance ventures is holding back their growth.

Reluctance stems from health insurance, which brings in the biggest chunk of premiums in the general insurance business. There is no regulator for healthcare delivery, which feeds into scepticism among health insurance buyers about overcharging by hospitals.
The insurance industry can, at best, nudge hospitals into a price band. But it remains a chancy endeavour. On the other end of the spectrum, government-funded health insurance prices premiums at levels that do not justify the claims. There is poor interest among private insurers for this segment. With local partners unwilling to commit funds for growth, joint ventures with deep-pocketed foreign insurers are thus caught in a low equity trap.

Unshackling insurance requires a rethink on how to go about providing funding for healthcare. Insuring outpatient care is a less expensive way to improve outcomes than covering the cost of inpatient care. IRDA has made some progress with managed care.

This rewards patients and healthcare providers for choosing cheaper lines of treatment and increases cost sharing. But there is more ground to be traversed. India’s transition to universal state-funded basic health insurance with scope for individual top-up is critically dependent on getting the pricing right. That involves holistic and engaged regulation.