Glass half empty or glass half full? In the context of the Indian health insurance industry, one could look at it both ways. Mired by low penetration and negative consumer perceptions about utility, the insurance industry is surely a difficult one. The flip side though is that we have hardly scratched the surface of the opportunity which lies ahead of us. I see the glass half full. Much remains to be conquered and even more remains to be accomplished!
As someone has aptly said, “Optimism is the foundation of courage”. Courage in the context of the Indian health insurance industry, to my mind, has only one meaning—courage to innovate. As an industry we need to take a lead to drive innovation across products, awareness building and policy changes. Below is my interpretation of what dynamics prevail in our industry and views on how innovation by industry movers can help actualise the potential growth.
The opportunity is immense!
Before delving into the details of industry dynamic, the complexity and so on, it would be great to be inspired with the opportunity ahead of us. The good news is that the consumer is waiting! The gap between health care spend in India and that covered by health insurance is a mammoth US$57 billion. This gap is waiting to be addressed, provided we innovate. Penetration of health insurance of any form is in single digits vs developed economies where it hovers at 80% or more. Even those covered are under-insured in some form or the other. Imagine, if we could just cover half of our people with health insurance, how dramatic a growth we would see! But more importantly a massive improvement in equitable access to healthcare.
Needless to say, the opportunity is immense! Attempts are on by Max Bupa, and I am sure by others. The industry is striving to get its arms around this huge opportunity.
My belief is strong that innovations across all touch points will be the one that would make the difference and help us accomplish our mission of getting to universal health insurance coverage in India.
Health insurance demand & its drivers
While the opportunity ahead is dramatic, the growth which the insurance industry has witnessed thus far is nothing short of exemplary. According to the Modern Medicare magazine, over the past few years, the health insurance sector has been grown rapidly at 18%-20% p.a., clearly outpacing the GDP growth of the country. Important to note is that it has been the fastest growing non-life insurance segment. We can better that. The reason to believe that this growth will continue lies in the underlying drivers of demand—rising affluence in India, rising quality of care and the higher prevalence of lifestyle diseases.
Rising affluence: The single biggest contributor to growth is the growth of the vibrant “middle class” of India. This aspirational class is educated and aware. Consumption by the middle class is expected to triple as a share of India’s total consumption over the next 15 years. Importantly, McKinsey’s estimate suggests a tripling of healthcare spend by the middle class as a percentage of their total consumption spend (Deutsche Bank Research report published on 15 February 2010). This dual growth should lead to a staggering rise in health insurance spend.
Lifestyle diseases on the rise: A sedentary lifestyle has pervaded our being. There is lower physical labour today than earlier and there is no reason why this wouldn’t be the trend going forward. An implication is the advent of lifestyle chronic diseases such as cardiac problems and diabetes. Studies by CII and KPMG in the past have shown how diagnostic revenues in lipid profile, blood glucose levels, thyroid and hormonal levels have grown 25% p.a., reflecting a rapid growth in lifestyle diseases in India. With 50+ million diabetics and over 25 million with heart diseases, India is home to a huge incidence of lifestyle diseases. These diseases by definition last a life time and therefore are a huge strain on the pocket.
Better healthcare infrastructure: Advances in healthcare are being matched by the rapid growth of healthcare infrastructure in the country. At less than a hospital-bed for every 1000 of our population, India sadly is at 1/3rd of the world norm of 3 per 1000. The good part is that our Planning Commission targets to reach 2 beds per 1000 in 10 years’ time and this should spur the required infrastructural spend by the government. The growth rate in infrastructure is expected to be nearly 15% p.a., again, out pacing the growth in many other sectors.
Government push: Both the central and state governments are increasing the scope of public health cover for the poorer sections of the society. The sheer numbers being planned to be covered over the next few years are staggering. Irrespective of whether private sector plays a direct role or not, awareness about health insurance will receive a huge fillip, in turn spurring long term demand for the sector. Case in point is the Rashtriya Swasthya Bima Yojna (National Health Insurance Policy) created for people below the poverty line. Another government initiative which has brought millions under health insurance cover is the Rajiv Aarogyasri in Andhra Pradesh. What Medicare did for the sector in United States, can also happen in India, bringing millions under health cover.
Policy: Over the past years, we have seen a pro-active IRDA. From laying guidelines for “cashless hospitalization”, removing age-limits for health insurance eligibility to policy portability, we have seen a pragmatic approach towards the industry. With more policy changes, I expect that there will be several growth opportunities which will emerge. It is up to us to make the most of these. Starting from working towards recognizing health insurance as a stand-alone sector, to collaborating with industry bodies such as CII and FICCI to evolve governance rules, IRDA has been a catalyst for the growth of the sector in India, we as an industry must drive forward.
The health insurance industry’s growth is a given, a certainty, because of the fundamental drivers underlying it. But the growth is to be earned, and that would only happen through innovation on two fronts, namely, products and services.
Introspection before running the marathon
A few baby steps need to be taken before launching ourselves into this growth ‘marathon’. These baby steps according are more of introspection. We need to acknowledge that the insurance sector today is not completely in touch with the end-consumer and that we haven’t embraced innovation as we should have. Barring a few, innovation in our context has been limited to obvious add-ons such as dental-insurance.
By design or otherwise, the fact of the matter is that insurance is a “cold” sector for the end-consumer. The consumer perception of health insurance utility is vague at best. To make matters worse, the policy holder has been confused and oftentimes feels cheated because of a lack of understanding of how health insurance works while signing up for it. A market research commissioned by Max Bupa in 2010 shows how little is understood of the concept and the low levels of brand recognition for brands operating in the sector.
On the other hand, the insurance sector has been struggling with high claim ratios and a lack of understanding of the consumer profile. Research on disease pattern and reliable actuarial statistics on disease trends which form the basis of product creation are not available. Premiums are decided based on very broad parameters such as age and sex, rather than a thorough analysis of the health risk profile of an individual. Not because, we do not have the skills to run the analysis, but because of the lack of reliable infrastructure to implement.
I mention these points not to dissuade but with the belief that introspection and acknowledgement of fallacies will be the beginning of improvement. Once we are aware, we will have taken the ‘baby steps’ and can begin what I call a 10 year ‘marathon.’
Successfully running the marathon
Apart from inner belief (which I am sure the industry has), there is one thing according to me which is between us and our mission of universal health insurance. And that is certainly innovation.
There are umpteen examples of how other industries have innovated their way to expand the category. The FMCG industry innovated with “sachet shampoo” and look what has happened to the category. Closer to our industry is what Shantha Biotech did with affordable vaccines, opening the sector dramatically. We need to unleash innovation on all fronts and go beyond the obvious if we are to succeed like our counterparts have.
Not that this hasn’t happened elsewhere. In fact, we don’t need to look too far. China grappling with similar structural issues as us has already taken the plunge into innovation. Shifting from an indemnity focused model, the industry there is moving towards a customer-centric approach. Chinese health insurers are winning through differentiation which is largely coming from innovation in the managed care space, laying more emphasis on prevention and health education.
Innovation—across all touch points will be the key
Embracing innovation across the board will be the key to completing the marathon—our mission to make health insurance universal in India. Here are a few points to ponder over:
Product innovation: Creating products which the consumer needs and not give them what we recommend. ‘One shoe fits all’ approach has failed to make the cut several times in the past. Simple is not always good. So is ‘standard’. Need for insurance changes with the life stage of a person. Insurance needs also change based on the lifestyle of the individual. Trying to capture all these variables through a “standard product” is not going to work. Going beyond the “add-ons” and products which help take care of acute episodes, we need to create longer term products learning from managed care approaches from the West, which are preventative and holistic. Not “patch-work”.
Service innovation: There is a large opportunity for service innovation in the health insurance sector. The negative perceptions related to the sector today are in large part because of a slack in the service levels. Long wait times and lower efficiency on claims processing are things which can be corrected using technology. Usage of electronic medical records, regular health profiling and use of mobile applications can improve consumer experience. My firm belief is that appropriate usage of technology (in which India is second to none), can narrow the gap in service quality in India vs. the developed world in relatively quick time.
Distribution innovation: Perhaps, the current distribution model would prove to be too small to take the growth which is possible. Leveraging existing distribution models such as banks to promote and sell health insurance can lead to a step change in access to consumers. Extending bancassurance to sell standalone health insurance products seems like a logical move. But this is just one of the various distribution points which could be leveraged to make the access based constraint go away.
Awareness programs to manage perceptions: This is perhaps the most important of all the elements of innovation. And needless to say, the most complex one. Popular perception today slots health insurance amongst the various tax saving instruments for the taxpaying population. We should resist this. A collective effort by government and corporates is desirable. Awareness can be broken into the following buckets:
The author is the CEO Designate of Max Bupa Health Insurance Company Ltd
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