We all know the importance of health insurance. With the advent of cashless health insurance policies, the insured do not need to dip into their own pockets to pay medical bills. The hospital is reimbursed directly by the insurance company. This protects the insured from incurring high expenses due to medical claims, treatment, and sudden surgery or hospitalisation. Having a sound health insurance policy acts as a boon for the elderly.
So given its importance, one would expect a well thought-out regulatory regime governing the manner of setting up and operating health insurance companies. That is not the case.
The term ‘health insurance business’ is not defined in the Insurance Act, 1938 (“Insurance Act”). It only defines general, life, and miscellaneous insurance. What is even more interesting is that the IRDA (Registration of Indian Insurance Companies) Regulations, 2000 (which sets out the manner in which insurance companies should be set up) only recognises two types of insurance companies — life insurers and general insurers. There is no mention of health insurance or insurers.
To cover this gap, as a matter of practice, the Insurance Regulatory and Development Authority (“IRDA”) considers health insurance a mixture of life and general insurance business. It currently permits both life insurers and general insurers and also stand-alone health insurance companies to sell health insurance products. Examples of stand-alone health insurance companies include Star Health Insurance and Apollo Munich Health Insurance. Recently, the IRDA has also issued the detailed IRDA (Health Insurance) Regulations, 2013, governing the terms and conditions of health insurance policies.
The term ‘health insurance’ has been defined for the first time in the IRDA (Health Insurance) Regulations, 2013 as the means of effecting insurance contracts which provide for sickness, medical, surgical, or hospital expense benefits including assured benefits, long-term care, travel insurance, and personal accident cover. These regulations however, only provide clarity on how a health insurance policy should be structured, and not on how an insurer should be set up or regulated.
While the IRDA has been notifying circulars and regulations to bring health insurance within the fore of its regulations, there is still some way to go before we can say there is a clear regualtory framework.
For instance, the Insurance Act states specifically that the minimum paid-up capital for a life and general insurer is Rupees 100 crore. Health insurers are also forced to comply with this requirement since health insurance is considered a sub-set of either life or general insurance. There is no separate limit specified for health insurance.
Perhaps the way to go, is to look at the changes proposed in the Insurance Laws (Amendment Bill), 2008 (“Bill”) which seeks to bring sweeping amendments to the Insurance Act. This Bill seeks to define health insurance and also insert a new provision for capital requirements for health insurance companies. As part of the considerable debate on this area, the Ministry of Finance has prescribed a reduced minimum paid-up capital requirement of Rs. 50 crore for health insurance companies, in order to facilitate the growth of health insurance in the country and reduce any entry barriers to a priority sector in the insurance space.
The views of the Ministry of Finance have not been accepted by everyone. Existing insurers such as Bharti AXA General Insurance Company and ICICI Lombard have for instance, stated that given the infrastructure and the service parameters required to reach the rural masses, the minimum capital requirement for heath insurance companies should remain at Rupees 100 crore. The success of the health insurance business depends to a lager extent on its credibility amongst the customer groups, which would entail substantially large startup costs. Coupled with large infrastructure and claim servicing requirements, a higher minimum paid up capital is required. In fact, the Standing Committee of Finance in its report recommended a minimum limit of Rupees 100 crore.
While it appears from public reports that this recommendation has not been incorporated in the current draft of the Bill, it is encouraging that such discussions are taking place. Unfortunately, the Bill is yet to see the light of day, though the Government has been keen to push it ahead in Parliament. It is time the indsutry woke up to the fact that health insurance is very specialised and requires deeper thought. Discussions such as the one above are few and far between and need to be expedited to provide a regaultory framework for health insurance.
(Deepa Mookerjee is part of the faculty on myLaw.net.)