Rashtriya Swasthya Bima Yojana running into issues

Rashtriya Swasthya Bima Yojana (RSBY), which is the health insurance scheme for the Below Poverty Line (BPL) families in India is running into issues due to delay in payment of premiums by the Government and the delay in claims processing by the Health Insurance companies.

The salient features of RSBY are:

1. It aims to provide health coverage to BPL families who cannot afford to pay for health related expenditures. It is a nationwide scheme.

2.It has been rolled out by the Ministry of Labour. Each beneficiary is entitled to a health insurance coverage of Rs 30,000. It is effectively free for the policyholder with them needing to pay only Rs 30 to get enrolled in the scheme

3. There is no age limit and most pre existing diseases are covered

4. 25% of the health insurance premium is paid by the State Government and and 75% of the health insurance premium is paid by the Central Government

5. The policyholder has a choice of public or private hospitals. SmartCards are issued to the policyholder and the smartcard can be used in any RSBY empanelled hospital in the country. In that sense, there is no locational constraint.

6. The policyholder is entitled to cashless claims

5. 2.5 crore smart cards have been issued across 25 states

But of late, the government and the insurers have started pointing fingers at each other regarding premium payment and health claims payment. Rs 225 crores worth of premium which has to be paid by the State Government is now pending. The Central Govt has cleared its part of the premium payment obligation. Because the take up rate of the scheme has increased very rapidly, state governments have been struggling to keep up with their obligation towards the premium payment.

On the other hand, the government has expressed concern at the high level of claims pending with the insurers. While there has definitely been a great deal of fraudulent claims, the pending claims ratio is still way too high. The four public health insurers are yet to settle 50% of the claims. ICICI Lombard has 35% claims pending while Tata AIG has 28% claims outstanding.Mr Anil Swarup, joint secretary in the Labour ministry, has gone on record saying that the four nationalised general insurance companies have been very slow in the processing of health insurance related claims under RSBY.The official guideline in RSBY is that claims have to be settled under 21 days.The private insurance companies and the 4 public general insurance companies have exactly 50% market share under RSBY.

Enhanced Gratuity Provisioning of Public Insurance Companies

IRDA, in a recent circular, has notified that pay revision of the employees of the Public Insurance Companies has been carried out and the maximum gratuity provisioning has been increased from the current Rs 3 lakhs to a maximum of Rs 10 lakhs. Gratuity is a payment made to employees who have served for more than 5 years in an organisation. Gratuity payment is calculated as 15/28 of monthly basic pay for every year of completed service, which is paid out when an employee retires or leaves the organisation. Gratuity liability calculation of a company involves detailed actuarial calculation, and every company must make provisioning for the gratuity liability. 

Earlier, the maximum gratuity limit was fixed at Rs 3 lakhs, but now it has been revised upwards to Rs 10 lakhs. Public Sector insurance companies, which have a significant number of employees who have served significant number of years in service, will have to make a far larger provisioning for their gratuity payouts. This will have a negative effect especially on the 4 public sector general insurance companies which are already reeling under significant accumulated losses and will put further strain on their solvency ratios, needing more capital infusion.

IRDA however has given a timeline of upto 5 years to make this increased provisioning @ 1/5 of the increased provisioning every year.

Third Party motor insurance premium set to increase by upto 65%

Your car insurance policy has two components : Own damage and third party.

Own damage , as the name implies, is when your car is insured for the damages that it might incur in an accident, or the insurance for your vehicle should it be lost etc.

Third Party: This is the crucial part of the insurance where you are protected for the damage that you or your car might cause to others. For example, if there is an accident involving your car where another car is damaged and there is a loss of life, you need to have protection to pay for the damages of the other car and also compensate for the financial loss of the other life. Not having this third party car insurance can be financially crippling.\

Third party motor insurance is compulsory by law. No individual is allowed to drive one's car without third party motor insurance. Third party motor insurance is also typically quite cheap. For example, for a private car, in most cases it is less than Rs 1000 per year. IRDA, the insurance regulator, still controls the pricing of third party motor insurance while it does not control the pricing of any other insurance risk. This is called tariff. The general insurance sector was detariffed in 2007 with the exception of motor insurance third party.

India is perhaps the only country in the world which has unlimited liability covered in third party motor insurance for unlimited periods of time. Thus an external party, in theory, can file for  a 100 cr compensation, even 20 years after an accident has happened! Third party claim amounts in recent years have been on the rise due to greater earning potential of individuals in general, and earnings being projected over a  longer life span.

General insurance companies in India have been bleeding because of the motor third party premiums being kept very low by the regulator. A third party motor pool has been created to pay for all the third party related claims and that has had a huge deficit . Insurance companies have been asked to provision for an additional 3500 crores to take care of this liability. And they might need to provision even more later. This pool has had such an impact that many insurers have needed to infuse additional capital to ensure that they maintain the solvency margins stipulated by IRDA. Motor third party has proved to be the curse of the general insurance industry in India.

However, IRDA has now announced new pricing for the motor third party insurance which has come as a welcome relief for all the general insurers. Effective 25th April, third party motor insurance rates will go up between 10% and 65% depending on the category of the vehicle.

The following are the basic features of this price increase effected by IRDA:

1. The increased rate for each class of vehicles has been decided after looking at the claims cost of that category of vehicles, claims experience and the cost inflation index determined by CBDT

2. Earlier the rates were reviewed every 4 years, but now the rates will be reviewed every year. This is a welcome move

3. IRDA has sternly warned the insurers that they should not shy away from writing third party motor insurance business and should make this available at their offices

The bigger increase has rightly been in the Commercial Vehicles segment which was the loss leader. While the insurance industry wanted almost a 80-90% increase, they have been allowed a 65% increase which is also quite substantial

S&P downgrades Indian General Insurance outlook to negative

S&P, the global ratings agency, has downgraded the business outlook of India's general insurance companies from stable to negative. This is primarily because they believe that there will be significant downward pressure on the insurance companies' bottomline due to underwriting losses. Put simply, they feel that higher claims will affect profitability of the Indian general insurance companies. BCG, in a recent report, has mentioned that the accumulated underwriting losses of the Indian general insurance companies is in excess of Rs 30,000 crores. S&P, in their report, mentioned that the insurance companies were reporting profitability primarily because of investment income, which they believe is currently volatile and there can be some shocks  there.

This is not surprising- general insurance companies are bleeding because of the 3rd party motor insurance where there is a collective deficit in excess of Rs 5000 crores, and health claims where hospitals are massively exploiting the insurers by overcharging. The Indian customer will need to brace himself for increased premium rates very soon.

Legal battle brewing on the TPA front

Third Party Administrators (TPAs) have been in the eye of the storm recently during the entire controversy of cashless claims for the health insurance industry. The four public sector general insurance companies have expressed their dissonance at the functioning of the TPAs, claiming that they have contributed directly to higher claims by not managing the claims process efficiently. On the other hand, the consumers are also not happy with the TPAs, claiming there have been inordinate delays in claims processing and claims have been summarily rejected or reduced.

The four public sector general insurance companies have now decided to set up a TPA wherein they have a substantial stake. They had invited expressions of interest from different quarters, and have finally arrived at a shortlist of 2 TPAS. The insurers argue that they will have far greater control on the claims process through this inhouse TPA.

The existing  TPAs have contested this saying that the insurers should not pick up stake as they are in interested party, and the process will lose its independence. The TPAs claim that they will lose more than 50% of their business, and will have to lay off over 10000 people. 

It seems that IRDA might have to intervene finally, else the matter will end up in the courts. The fact of the matter is that the industry is bleeding through excessive claims.