Both central and state governments have introduced various health insurance programmes to improve protection against catastrophic health expenditure. Private voluntary insurance has also grown in terms of lives covered and premiums collected during the last decade. For example, as of 2018–2019, 24% of all lives covered under health insurance are private insurance. Similarly, health insurance as a healthcare financing mechanism had gained momentum in India with an increase of 17.16% in gross direct premium on a year-to-year basis, which has reached ₹516.38 billion (US$ 7.39 billion) in FY2020 (Healthcare Industry in India, 2021). There could be multiple reasons for this phenomenal growth in health insurance premium, for example, the privatization of insurance business, entry of standalone health insurance companies, the introduction of third-party administrators (TPAs) to provide cashless hospitalization services, de-tariffication of the general insurance business, increasing healthcare costs, increase in disposable income, high OOP healthcare expenditure, shift from communicable to non-communicable diseases, standardization, and health insurance portability.
However, with low public spending on healthcare and a high share of OOP, health financing in India has been a significant challenge. The 2016 Household Income and Expenditure Survey in Bangladesh and the 75th National Sample Survey (NSS) in India suggest that healthcare financing through OOP payments results in catastrophic health expenditure and impoverishment in many Asian countries, including India.
Similarly, the Indian health insurance industry is also currently experiencing multiple challenges. There is a huge trust deficit between the health insurance companies and the healthcare providers (hospitals). It has been observed that the customer’s (insured patient) awareness about the health insurance policy terms and conditions is very poor, leading to poor customer experience. A lack of a trained workforce and poor infrastructure poses a threat to the promise of healthcare access and affordability (Kumar & Rangarajan, 2011). Interestingly, fraudulent cases are reported wherein the insured try to get reimbursement of hospitalization bills that were never incurred in the first place. There is also an increase in the regulatory expectations for protecting policyholder interest and a lack of technology to make health insurance more appealing to the average citizen, justifying the negative media coverage and the poor penetration of health insurance in India. Among these multiple challenges, one of the critical challenges insurance companies face is a high incurred claim ratio (Kumar, 2015; Kumar et al., 2011). In response to the technological changes observed globally, companies are now adopting newer technologies and are ramping up their strategic investments towards research and development (R&D) and innovation efforts (Shaker & Covin, 1993). There is a need for sustained investments for developing healthcare infrastructure and a healthcare budget that has provisions for funding government-led insurance programmes.
Over the last decade, multiple changes have occurred in the healthcare industry in India. First, there has been a shift in health priorities from communicable to non-communicable diseases. Second, there has been growth in the healthcare industry, coupled with economic growth and fiscal capacity. Third, there has been an increase in the incidence of catastrophic expenditure due to the rising healthcare costs. Medical inflation is outpacing the general consumer price index. Over 34.9% of the population had experienced catastrophic expenditure on health (OOP exceeding 10% of non-food expenditure), which pushed 4.48% population into poverty. Fourth, political will towards health assurance has emerged. Both central and state governments have launched various health protection schemes to protect people against catastrophic expenditure.
India has been spending about 4% of its gross domestic product (GDP) on healthcare during 2000–2017. The health system is financed mainly by a mix of general tax, social insurance, and OOP expenditure. Public expenditure on healthcare stood at approximately 1.2% of the GDP over the last decade, despite attempts to increase it to 2.5%. The government could not provide a credible commitment to this change, resulting in a 32%-to-68% public-private expenditure split. The social insurance schemes are limited to the formal sector, and private health insurance accounts for less than 5% of the total health expenditure. The high OOP, which stood at 62.4% in 2017, is regressive and creates barriers to access. With the government health protection programmes funded by a general tax, especially PM-JAY, providing cashless services, the OOP expenditure is likely to come down.
Despite the attempts to increase the health protection coverage, as per the 75th NSS report, 83% of the population do not have any protection against healthcare spending. As high as 86% of the rural population and 81% of the urban population are still not covered under any system of health expenditure support. The government, however, has been able to bring about 19% of the urban and 14% of the rural population under PM-JAY and similar programmes. Health protection supported by employers (other than the government) forms just 1.6% (in rural areas, it is 0.3%, and in urban areas, it is 2.9%). The percentages of persons covered by retail health insurance (excluding government schemes) in the urban and rural areas are 3.8% and 0.2%, respectively.
On the one hand, there is a massive opportunity for health insurance companies to tap the uninsured population. On the other hand, there is this challenge to identify the different sources of competitive advantage to bridge the demand-supply gap in healthcare more efficiently and effectively. Within the health insurance industry, different kinds of resources (both tangible and intangible) are required to smooth the strategic, operational, and innovation processes. There is a need to develop capabilities that will help build a strong relationship with different stakeholders, especially the providers, and make health insurance policies more affordable. For an insurance company to gain a sustained competitive advantage, it is essential, on the one hand, to use the existing resources and capabilities and, on the other hand, to invest in strategic initiatives such that it can reduce the ICR across the customer segments (i.e., B2C [business-to-customer], B2B, and B2G).
There are critical six success factors for the health insurance industry. An insurance company can create more economic value than its competitors by either configuring its value chain differently from competitors or performing the activities more effectively. Some factors include the ability to design simple-to-understand health insurance products and identify niche customer segments and serve them well, offering of product pricing that is attractive to both the intermediaries selling the product and the customers buying it, building a strong distribution channel and long-term partnerships with banking channels, prudent underwriting, provider networking, healthcare purchasing, and claims management.
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