CORPORATE HEALTH PORTFOLIO: CHALLENGES & SOLUTIONS

Guide: Mr. K.K. DharniDate : 19 December 2014

Presenters:

Ms. Vandana BaluniMr. Irvinder Singh KohliMr. Abhijit Pal

1 Historical background of Corporate Health

2 Corporate Health – Product, Pricing & Underwriting

3 Corporate Health – Indian Statistics

4 Probable reasons for Adverse Experience

5 Probable solutions

6 Conclusion

Agenda

2

Historical background of Corporate Health

3

History

Financing of employee health expenses, as a concept in India, was first put in place by the

establishment of Employees State Insurance Corporation (ESIC) in 1948 . The act made it

mandatory for blue collar workers to be covered by health insurance.

Employees covered under the scheme are entitled to medical facilities for self and

dependants. Cash benefits in the event of specified contingencies resulting in loss of

wages or earning capacity were also provided under the scheme.

Central Government introduced on 1st Jan 1954 the Central Government Health Scheme

(CGHS) to provide healthcare benefits to the employees of central government.

Voluntary health insurance for individuals and employees was introduced in 1987, by the

launch of Mediclaim.

4

Corporate Health Plan – Product, Pricing & Underwriting

5

Product Features of Corporate Health

Products offered under Group Health are very flexible and comprehensive, which can be on

either Individual or Family Floater basis providing coverage to spouse, children and parents

of the main policyholder

The product typically covers in-patient treatment, out-patient treatment, maternity cover etc

with waivers of 30 days, 1or 2 year and pre-exiting waiting periods.

Sub-limits are offered for benefits for different benefits offered in the product.

Products are offered with wide range of sum insured from few thousands to over 10 lacs.

Some products also offers Wellness schemes/programs along with these policies.

Some products offer Corporate Buffer feature under which if sum insured of an employee is

exhausted, he/she can use the amount from the Corporate Buffer, which is additional sum

insured at policy level.

Additional benefit such as Personal Accident, Critical Illness, Hospital Cash etc are also

offered with these products.

Cafeteria /Menu Type plan are offered which provide options to choice from range of

benefits to Employee 6

Characteristics of Corporate Health Portfolios

o A large number of different industries and occupationso Big variation in the occupation of the insuredo Big variation in size of risk

Heterogeneity

o High proportion of large claimso Exposure to latent claims

Volatility

o Policies typically sold through Brokers/Agents who:o Want to reduce administrative costso Try to limit inconvenience for their customerso Often provide bulk entered policies or claims

o Lack of structured data – data is often provided as free form text field.o Limitations of insurance system to record all relevant risk information

Lack of Quantity and Quality of Data

o Pricing is heavily influenced by the underwriting cycleo Relationship with intermediarieso Significant case underwritingo Individual policies may also have a material impact on GWP volumes and expense ratio

A Large Number of

Soft Factors

o Non-standard policy wordings and tailored productso Policy exclusions are often applied

A Large Number of Products/Covers

7

Underwriter

Rate

How is a Corporate Health Policy Priced?

o A specified or ‘book’ rate applied to exposure• For some products this may be based on as few as one or two rating factors• Others products may have a sophisticated pricing structure

o Based on technical analysis of historic performance

o In practice a blend of methods will be used depending on the class of business / individual insured / underwriter judgment

o For small or medium size of the policy the technical rate may used without further consideration• Case underwriting is often uneconomic due to small average premium size

o For a large commercial risk the rate may be based entirely on the insured’s own experience• There is no set rule for ‘large’, but there needs to be a meaningful claims pattern

o A rate is calculated based on a burning cost of the insured’s own claim experienceo Assumptions are needed around:

• Inflation• IBNR/IBNER Factors• Large Loss Loadings• Commissions / Expenses / Reinsurance / Profit

Experience

Rate

Technical

Rate

o Underwriters may have the authority to apply loadings / discounts based on their own assessment of the risk

o They may use information gathered from broker or other sources

Final Rate

8

Underwriting Guidelines of Corporate Health Products

Underwriting guidelines for Corporate Health Products are normally very liberal.

“Fit to work” criteria is generally acceptable to provide coverage to the employee.

Generally no medical tests are conducted for underwriting (other than exceptional

conditions for example very high sum insured, high sub-limits etc)

Generally all employees (or specific level of employees) are covered in the policy. In case

policy does not mandate coverage to all employee, then additional premium is charged to

reduce anti-selection.

9

Corporate Health – Indian Statistics

10

Business Statistics – Health Insurance in India

2009 2010 2011 20120

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Growth of Health Insurance (GWP)

Group Retail

Pre

miu

m

(in

th

ou

san

d C

r)

2009 2010 2011 20120%

25%

50%

75%

100%

125%

150%

Net Loss Ratio in Health Insurance

Group Retail

Loss

Rati

o

“Group” refers to Corporate Health insurance.

Corporate Health insurance higher proportion of business as compared to Retail products.

Loss Ratio for Corporate Health products are higher than Retail.

Loss Ratio for Corporate Health products is improving in recent years.

Source – IRDA Annual Reports 11

Males have higher proportion of claim than Female for both Retail & Group Products.

26 – 35 age band has higher claim for Group products as compared to 36 – 45 for Retail products

Female proportion in age band 16 – 25 & 26 – 35 have higher proportion of claim as compared to Male for Group product, which could be due to Maternity related claim.

Maternity benefits have long waiting period in Retail products, hence the proportion of Female to Male claims are in similar proportion for Retail product.

Business Statistics – Health Insurance in India

“Group” refers to Corporate Health insurance. Source – IIB Health Report 12

Probable Reasons for Adverse Experience

13

Probable reasons for Adverse Experience

1. Account underwriting

2. Benefit design & structure

3. Technical Pricing Approach not followed

4. Changes in demographic mix over the policy tenure (e.g.: growing companies)

5. Discounts structure

6. Role of intermediary

7. Claim Management

Contd….. 14

Probable reasons for Adverse Experience

Account underwriting Corporate Health insurance was historically offered free or subsidized rate as part of the commercial

insurance coverage such as commercial coverage Fire, Theft etc.

Premium for commercial coverage was based on standard tariff, hence Corporate Health was offered free to offer discount or better overall premium to corporates.

Commercial coverage were profitable, hence high loss ratio due Corporate Health had minimal impact as absolute size was small.

Insurance Companies were not focusing on Health Insurance business, hence performance of Corporate Health was not tracked.

Benefit design & structure High sum insured offered to selected employees (company directors, CXO’s) without adequate

underwriting.

Pre-existing coverage to higher ages (parents) with limited underwriting.

High utilization for certain benefits (for example Out-patient coverage)

15Contd…..

Probable reasons for Adverse Experience

Technical Pricing Approach not followed Technical Pricing is used for Retail health products, hence have better experience for both Public &

Private Health insurance companies.

Lack of credible data for technical pricing.

Lack of expertise for pricing

Limited experience of the insurer/ industry

Market is too competitive, insurer fear to loose business due to high premium, which might be suggested by technical pricing approach.

Discounts offered by companies due to commercial reason

2009 2010 2011 20120%

25%

50%

75%

100%

125%

150%Comparison of Loss Ratio (Corporate Health)

Public Private

Loss

Rati

o

2009 2010 2011 20120%

25%

50%

75%

100%

125%

150%Comparison of Loss Ratio (Retail Health)

Public Private

Loss

Rati

o

Source – IRDA Annual ReportsContd….. 16

Probable reasons for Adverse Experience Changes in demographic mix over the policy tenure

Demographic mix may change for small or medium companies (large hiring or attrition), leads to experience rated premium to representative of the experience.

Significant decrease in number of lives covered in the policy, leads to higher proportion of refund of premium.

Discount structures The discount structures are often discretionary and decision is taken by underwriters based on their

understanding of the business, which is subjective.

Lack of objectivity often leads to insurers offering heavy discounts due to competitive pressure.

17Contd…..

Probable reasons for Adverse Experience

Intermediary Intermediary is more close to Employer and provides other services, hence has access to more

information which it may or may not be shared with insurer.

Intermediary provides data for pricing and which is not of high quality.

Intermediaries may influence the premium to be charged and are more focused to get the business.

Intermediary may not provide complete information to all insurer, leading to experience rating not credible for insurer with lack of information.

Claim Management Higher than expected utilization of the benefits due to change in management practices.

Claim settlement by TPA, who may focus on meeting turnaround time rather claim amount.

Lack on focus by insurer in earlier years.

Adequate data not collected by insurer, which leads to lack of information for pricing.

18Contd…..

PROBABLE SOLUTIONS

Probable Solutions

1. Data for Pricing

2. Pricing Approach

3. Industry wide initiatives

4. Product and Benefit structures

5. Focus on Service

6. Focus from Regulator

7. Non-traditional arrangement

8. Reinsurance

9. Focus on wellness and preventive

20

Probable Solutions Data for Pricing

Improve Quality of data – standardized format agreed by industry 2 to 3 year of data used for pricing Minimum data requirement to provide the quote Insurer, intermediary, employer etc to understand importance of data

Pricing Approach Involve actuaries for large cases Check adequacy of premium for the policy Analyze experience at more granular level to help understand the challenges better . Assumptions on medical and expense inflation Book rates can be used for small/medium groups

Industry-wide initiatives Industry participants must come together to improve the experience Reduce undercutting of premium to get the business Operational efficiencies to reduce expense and increase margins Adequate training to employees/sales channel so that appropriate information is collected. Expense rationalization e.g. TPA fees linked to profitability and service level., technological

advances etc. Standardize data format and requirement to provide the quote.

21Contd…..

Probable Solutions Product & Benefit Structures

Offer restrictive products Limit on maternity claims Deductible/excess for high utilization benefits High sum insured not offered to small groups Minimum group size to offer Corporate Health coverage

Focus on Service Active claim management Seamless enrollment of the employees Improve efficiencies in processes Real-time information available to Employer

Focus from Regulator Approval of Premium / Product Reporting of experience by insurance companies Control in Broker/Agents Control in level of flexibility allowed in products Monitoring of claim experience of Corporate Health business to ensure that adequate premium is

charged

22Contd…..

Probable Solutions Non-traditional Arrangements

Profit sharing arrangement between Insurance company & Employer Stop-loss arrangement Sharing of policy between more than one insurance company. Cost sharing arrangements

Reinsurance Reinsurance arrangements for large groups Portfolio level reinsurance arrangement may deter insurer on undercutting premium Will help in improving capturing of data Provide guidance to insurer on writing large risk

Wellness & Preventive Care Helps in improving overall health of the lives covered Adds value to the policy Allows closer interaction with the employees and helps in better understanding their issues

23Contd…..

Conclusion

24

Conclusion

Claims experience for the Corporate Health portfolio is improving over year.

Data is an important factor in estimation of correct premium. Increased used of

technology & industry-wide commitment can help in improving data quality.

Regulator has increased the focus on the Corporate Health products, which is a

welcome move in this direction.

Increased use of technology in the areas of data collection, enrollment,,

underwriting and claim management can reduce the information asymmetry

between insurers.

The employers & employees must be incentivized for having better claim

experience and data management.

Addition of Value Added Services (e.g. Wellness) will not only increase the size of

the premium but also improve the health of the covered lives over long run.

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Thank you!!

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