Health insurance eating into PSU companies' profits: CAG

State-run general insurance companies may have to raise the group health insurance premium to remain viable as the Rs. 43,000 crore market faces the prospects of state-run companies losing market share. Without a rise in health insurance premium, it could erode profits from other segments, said an audit of finding by the Comptroller and Auditor General of India (CAG).
The audit found that losses from the health insurance business of public sector insurers have either wiped out, or decreased, the profits of other lines of their business, particularly in group health insurance where premium charged was less and claim outgo was more in comparison to retail policies. All four general insurance companies namely New India Assurance Co Ltd (NIACL), United India Insurance Co Ltd (UIICL), Oriental Insurance Co Ltd (OICL) and National Insurance Co Ltd (NICL) have made consolidated losses between 2016-17 to 2020-21 of Rs 26,400 crore which has overshadowed the Rs 7800 crore profit the companies made in marine, motor and fire insurance during the period.

“The combined ratio for group health insurance segment of PSU insurers ranged from 125%-165%, which was much higher than the ceiling of 100% prescribed by the Union ministry of finance. The audit analysed TPA-wise allocation of business (annual premium) and TPA-wise incurred claims ratio (ICR) and found that all the four PSU insurers allocated major share of business (15%-44%) to one TPA (Medi Assist India TPA Pvt Ltd) despite high ICR of >100% in the claims serviced by the TPA in some years. For other TPAs too, allocation of business was either increased or maintained at same level despite high ICR in the claims serviced by them in previous years,” ICICI Securities said in a note.

The purpose of the audit was to ascertain whether PSU insurers managed health insurance sustainably, whether they has a system for empanelment of third party administrators (TPAs), enrolment of hospitals and a suitable system for processing and settlement of claims. It also analysed whether risk underwriting of health insurance policies was done in a prudent manner and appropriate internal control mechanisms were in place to protect revenues.

ICICI Securities said group health business needs higher pricing which could boost the sector. “The ability to process claims effectively (including validation checks and controls) are significant business moats, which can decide winners in this business. As such, even if life insurers were to start health indemnity products, it will require significant upscaling of operational and technological capabilities. Without course correction, PSU players can continue to lose market share to well-entrenched private health insurers,” ICICI Securities said.