Health Insurance in India: Thoughts & Insights

The Changing Landscape

(Note: This article was first published at by the author in August 2009)

 Health is one of the fundamental obligations a society owes to its members. Health insurance is an enabler that should assure every individual of adequate and appropriate healthcare – based on their needs, risks and affordability. While the RSBY is a good mechanism to offer affordable healthcare for those falling in the lower economic strata, as a society there is still a large segment belonging to lower-middle, middle and upper-middle classes that have varying needs to be addressed in a manner that makes it win-win for all stakeholders – Insurer, Insured and the Intermediaries (including Providers) – in the health care/insurance domains.
This blog series will focus primarily on how the TPAs have contribued and should/can contribute to health insurance administration in India in the following sections:

The Challenges
Year 2002: Enter The TPA
TPAs: Catalysts or Facilitators ?
The Road Ahead
TPAs: Deliver ‘Value’ Or Perish

The Challenges

The broad challenges in India’s health insurance are:

a) ability to understand the health profile and requirements of the population and come out with a strategy to offer a health insurance payment mechanism tailored to the needs of each segment of the population
b) ability to manage a large portfolio of products with a large customer-base dispersed over a large geography
c) ability to manage a large number of providers thriving in an environment totally devoid of regulatory controls (I recently discovered that if I want to, I can start and run a chain of diagnostic centers without being a doctor or a chemist!)
d) ability to keep the business viable, taking into consideration the above three

<Year 2002: Enter The TPA

When the TPAs first started operations in late 2002, the scenario was like this:
a) Only public sector companies were in health insurance business
b) The PSUs had broadly 3 types of products – Standard – Individual, Standard – Group, Tailormade – Group. There was one other product of significance – New India’s Good Health – sold via Citibank. All these were “indemnity” products – with no sub limits! The customers have always loved it!

The PSUs were often offering the Group policy product to premium general insurance clients virtually as a freebie – or at a highly discretionary, concessional premium with virtually no suitable IT platform to keep track of who the employees and their dependents are! This was a gaping loophole for anybody to become any policyholder’s dependent when faced with the threat of hospitalization!

In 2003-04, Bajaj, Tata AIG and ICICI Lombard became the visible private sector players in this domain. In 2007, I-Pru was the first life insurance company to foray into health insurance space with their “fixed benefit” products. They have been followed by LIC,MNYL, Aviva, Birla Sun Life, Royal Sundaram etc. This has definitely increased the number of products – but in the eyes of the consumer, they look the same: fixed, rigid and the consumer unsure whether he can really “top up over Indemnity” in the event of an incidence of claim.

<TPAs: Catalysts or Facilitators ?

Today, in 2009, the situation has changed somewhat – radically in perspective, but miniscule if one looks at the needs of the next 5 years. The TPAs have brought in a semblance of data consolidation in this industry – though, the insurers and IRDA would know the pains associated with getting the data and the risks of making sense out of it! There have been some improvements in the processes too – ID Cards and Cashless Treatment being worthy of mention, something the slow moving PSUs would not have achieved in such quick time. But there are so many other opportunities that are probably not getting the right kind of attention or the focus is blurred.

This brings us to the next question:
Are the TPAs to be seen as catalysts or as facilitators?

Let’s take a look at what these terms mean in the dictionary:

catalyst: a substance that accelerates a reaction without itself being affected

facilitator: someone who makes progress easier
We need to answer a few more questions to determine whether they are catalysts or facilitators:
a) Why were the TPAs brought in?
b) Was it for a limited purpose?
c) Is there a continuing role for them
d) Is it a marriage of convenience?
e) Are they delivering value that can(not) be easily replicated?

It is likely that having seen several TPAs moving “up?” the value chain and turning insurers, many existing insurers may see TPAs as the Trojan Horse. The answer to this lies in how the engagement is structured and could be the topic of a separate blog.

<The Road Ahead



The share of PSU insurers has declined from nearly 100% in 2003 to about 65% in 2009. The industry is witnessing serious growth with a CAGR of 37%. E&Y estimates paint a scenario where the market will grow from US$ 1 billion (2008-09) to US$ 7 billion by 2015. Here are a few questions this expected quantum leap will pose for TPAs and Insurers:

a) Are the PSUs planning to have their own TPA as a strategy to maintain their market leadership? Can they manage it within the 5.x% commission they are paying to TPAs presently? Or will there be a huge overhead that will further erode the viability of the business?
b) Will ICICI Lombard and I Pru (who have moved their operations in-house)
adopt exactly the opposite strategy and revert to TPAs as a strategy to focus on markets rather than operations?
c) Or will some dark horse do something different(ly) to emerge in the forefront?
d) Would the stand-alone health insurers, Star and Apollo DKV steal a march over others?
e) Will more TPAs partner with global players and become insurers? What are they doing today to get there tomorrow?
f) Is there a chance of the ‘Self Insured’ market emerging from its shadows? If so, how will the providers network and payment mechanism operate? Is this a niche or big space?
f) Can a ‘reward for performance’ system be introduced for the TPAs to participate proactively in this market?

The answers each stakeholder brings to the above questions will determine the speed and direction in their chase for market leadership

<TPAs: Deliver ‘Value’ Or Perish

The current state of health insurance should lead one to think that the TPAs have fulfilled the role of catalysts, and will now qualify to be considered as facilitators.But somehow the TPA industry tends to believe that they have to fight for survival. How about each PSU insurer picking up ‘one TPA’ based on stringent selection criteria as their pan-India service provider who will get 65% share of their business? Such TPAs should not be attached to any other insurer. The remaining 35% will go to several of the other fringe TPAs. With clearly defined deliverables and measurable service parameters that guarantee value creation.

There are about 30 TPAs in India with diverse width and depth of competence, capacity and technology support to address the challenges of the business. The bigger TPAs have taken the ‘TPA business is too small, let’s be an insurer ourselves’ route to growth. At the risk of losing their TPA leadership and not making it big as insurers. The smaller TPAs live under the threat of being thrown out of business, with their “patrons in chief”, PSUs, thinking of “in house administration” while the mid-sized TPAs are the ones who do not seem to be certain of the road ahead. Some TPAs are looking for buyers, even if it means a distress sale.

In the midst of all this chaos, one can see several entrepreneurs/businesses juggling as Providers, Brokers, Bankers, TPAs, Insurers, Reinsurers, and what not?

All these are signals that the landscape has changed. The battlelines are getting drawn. The war for market leadership in India has begun. And with more players entering the scene, it can only get hotter. Can a bloodbath be inescapable? Who wins, who loses in the health insurance sweepstakes will be an interesting outcome to look forward to in the next few years. It all reminds me of the book Rule of 3 (by Dr Jagdish Sheth and Rajendra Sisodia) in which the authors say that in any market, 3 players will lead and rule; all others will either be in the niche or in the ditch.

Are the TPAs facing extinction? Or are they in for a new lease of life with a more challenging role and growth opportunity? Surely, it is “make or break” time for the TPA industry. And maybe for some of the insurers too. The moment of truth is not very far away!