The Covid-19 pandemic spurred a rush in the Indian middle class to get health insurance policies. The Indian government too came up with some new health insurance instruments exclusively to address Covid care—but they remained tokenistic in nature and were nowhere near the scale of response required to tackle the health care challenges posed by the pandemic.
Health insurance in India falls into three broad categories: 1) Insurance cover for individuals or families, purchased by the individuals themselves or provided by their employers, known as ‘retail insurance’ in industry parlance; 2) Group insurance schemes offered by the government bodies as well as private firms, covering large sets of people; and 3) Government-provided social security schemes for the poor with health, life and accident insurance components.
In Part One this write-up we look at how the government social security schemes with a health or life insurance component fared during the pandemic. In Part Two, we deal with the impact of the pandemic on retail insurance trends.
Private health insurance companies struck a goldmine during Covid
Ilango Subramaniam, 69, is the founder-president of Newton Ariviyal Mandram (Newton Science Forum) in Chennai, a forum for popular science communication. Among other things, this forum was also engaged in creating awareness about Covid-19. Ilango was down with Covid-19 last year. Seeing some of his friends paying 4 lakh to 6 lakh rupees in private hospitals for Covid-19 treatment, he took admission in Government GH in Chennai for 19 days and got free treatment. Seeing his plight, his neighbor took an insurance policy with a cover for Rs.4 lakhs. When he too was struck by Covid, he got himself admitted to a private hospital and got reimbursement to the tune of Rs.3.5 lakh from the insurance company.
After seeing menacing news about new Covid-19 variants and breakthrough infections, Ilango himself decided to take an insurance cover of Rs.2 lakh with an annual premium of around Rs. 10,000. Talking to Overresponse Watch about his experience, Ilango said: “Death of a hugely popular middle-class icon like singer SP Balasubramaniam sent shock waves among the middle classes and propelled them to take health and life insurance policies. In my assessment, 15–20% of the middle class population in Chennai would have gone for insurance policies for the first time.”
But he was amazed at the wide variations in premium offered by different insurance companies.
Table 1: Health Insurance covers and premiums by different insurance companies
|LIC COVID KAVACH
|STAR HEALTH INSURANCE
|Health Insurance Coverage
The benefits, of course, slightly varied. For instance, despite very high premium, TATA AIG did not cover comorbidities like diabetes and blood pressure cases. While Covid-19 Kavach by LIC covered people up to 65 years of age, some private plans covered people only up to 55 years of age and only a few private companies Star Health Insurance covered people up to 70 years of age. Still, these differences do not justify sharp differences in the premium rates.
As borne out by Ilango’s experience, Covid-19 pandemic had a two-fold impact on the health insurance industry in India. Initially, the insurance companies had to make huge payouts. This is due to the unexpected spurt in insurance claims by a large number of insured people affected by Covid-19. There was huge outflow of money. Surprisingly, though their finances and profit margins were dented by the pandemic, most of the insurance companies still made handsome profits in the two pandemic years.
Despite higher outgo of funds in the early months of the pandemic, the wheels of fortune turned quickly for the insurance industry providing health cover. In the first wave year of 2020–21 itself, the pandemic also triggered a wave among the middle classes to go for health insurance packages. The premium income massively increased for the insurance companies far outstripping the increased cost of claims.
Mixed impact of the pandemic on health insurance scenario
Initially, Corona cases were treated only in designated government hospitals in many cities. As the interface of the private hospitals with the insurance industry provided the raison d’être for the latter, the insurance industry initially had no role. Only after March 2020, some private hospitals came forward to treat Covid patients but many still refused, especially in the remote hinterlands. Only after April 2020, the state governments started allowing private hospitals to treat Covid-19 patients. When a PIL seeking a direction to the government to order all the private hospitals to treat Covid cases and to regulate the treatment costs came up for hearing in the Supreme Court in May 2020, the Centre took the specious plea that there was no provision under the Clinical Establishments (Registration and Regulation) Act 2010 to mandate compulsory treatment of Covid cases in private hospitals or to regulate the treatment cost they charged. The judges directed the government to invoke the Epidemic Diseases Act to do that.
Strangely, while the government did not hesitate to invoke the draconian Epidemic Diseases Act of 1897 of British colonial times to unilaterally enforce countrywide lockdown and resort to other authoritarian measures, it dragged its feet in invoking the same Act to mandate private hospitals to treat Covid patients at affordable costs. Even after that, while many of the private hospitals initially refused to admit patients with Corvid symptoms, later they made a U-turn, only to fleece them with huge bills.
This naturally hiked up the cost of claim payments by the insurance companies. Hence, in India, initially some insurance companies refused to cover Covid-19cases under the existing health insurance policies under the pretext that Covid-19 did not fall under the category of pre-existing disease and it was a new disease. However, in a welcome move, on 26 June 2020, the Insurance Regulatory and Development Authority (IRDAI) mandated all insurance companies to include Covid-19 also in their regular health insurance plans for all policyholders. The companies initially grumbled that this binding would push up their costs. But later the insurance companies themselves saw tremendous business opportunity opening up in covering the Covid cases. Somecompanies even started offering Covid-specific insurance instruments like Corona Kavach developed by IRDAI.
Increased claims settlement cost to the insurance companies
According to policybazaar.com, the Covid-19-related health insurance claims accounted for 48% of all health insurance claims faced by the non-life health insurance industry in 2021–22. The non-life health insurance industry in India received over 1 million Covid-19-related claims in the first quarter of FY22, spread across the second wave period, higher than the Q1FY21 spawning the first wave.
Table 2: Claims received and Claims settled by non-life insurers
|2021–22 (Upto July 2021)
|Value of total claims settled*
- These values of claims settled are for indidual and family insurance policies only and they do not cover group insurance policies.
Source: General Insurance Council.
The claims sharply came down after the second wave of Covid that ended by July 2021. Even assuming that the payouts doubled for the whole of FY22 compared to the figure up to July end, it would have come to around Rs. 20,000 crores. Even then, the premium income for the insurance companies far outstripped the increase in additional claims settlement cost for the two pandemic years as can be seen from the figures given below.
Increase in insurance premium incomes to companies
Data on the precise number of people who took health insurance newly in the two pandemic years of 2020–21 and 2021–22 are not available yet. But, as per the data put out by the General Insurance Council, Rs. 58,572 crores were paid as health premiums by policyholders in 2020-21, which covered the pre-second wave period of the pandemic. This worked out to a 13% increase on a year-on-year basis compared to the largely pre-pandemic year of 2019-20.
The increase in total premium incomes to the companies in 2021–22 registered a quantum leap to 34%, an almost two-and-a-half-fold increase (See Table 2 below).
Table 3: Increase in premium incomes to health insurance companies
|Insurance income received
Source: General Insurance Council.
The concern for health security triggered by the pandemic among the middle classes is the main reason for this. How much of this was due to increase in premium rates is not known. Many insurance companies increased the premium rates. The IRDAI however intervened again and restricted the premium increase to 5% only.
About 45% of this is was accounted for in 2020–21 by what is called in the industry as ‘retail segment’—meaning insurance policies taken by individuals themselves or provided by the employer of one of the family members, either for the individual or for the entire family. This figure for 2020–21 is reportedly the highest in recent years, which means there was a rush among the middle classes with disposable incomes to take health insurance policies.
Anyway, while the pandemic additionally cost the insurance companies to the tune of around Rs. 28,000 crores (Rs.7833 crore in 2020–21 and around Rs. 20,000 crores for the whole of 2021–22in health insurance excluding life insurance), the increase in additional claim payment and the premium income they earned from policy holders was more than two-and-a-half times higher than that at Rs. 58,572 crores in 2020–21 alone.
Higher Covid care costs in private hospitals fuelled higher health insurance coverage
Dr.Satyanarayana owns Surya Hospital in Kakinada, Andhra Pradesh. Recently, he had a strange and unexpected visitor. He walked in without any prior engagement and started asking why one particular patient was given two antibiotics instead of one. Puzzled Satyanarayana asked him who he was and why was he asking that. The guy said he was an insurance inspector from a reputed insurance firm and he wanted a statement from Satyanarayana regarding their query. Dr.Satyanaraya told Covid Response Watch, “I told him I owed no explanation to the insurance company and shooed him away. They refused to settle the claim of the patient treated by me. The same company colludes with corporate star hospitals when they charge hefty amounts from rich patients.”
The higher cost for insurance companies also subsumed the higher fee for Covid-19 treatment charged by the hospitals. Insurance cover is meant for protecting patients from higher treatment costs. But, in a paradoxical turn, higher Covid care costs in private hospitals came to fuel expansion of health insurance coverage. As a result, strangely enough, the insurance companies, which otherwise should have resisted a hike in private healthcare, came to develop a vested interest in higher cost. They simply passed on the cost of higher payouts to the policyholders. Often, a single hospital admission would exhaust the total coverage and the patient had to go for a fresh policy.
Table 4: Total death claims paid by the insurance companies and total number of life insurance policies
|2021–22 (Upto 30 September)
|Death claims paid*
|Total number of policies held during the year.
|Percentage change over the previous year.
- These values of death claims paid include group insurance claims too beside individual covers.
Source: General Insurance Council.
While there has been a sharp increase in death claims paid by the insurance companies, the total number of individual and group life insurance policies declined sharply as can be seen from Table 3 above. This is inexplicable and contrary to the spurt in the number of health insurance policies taken. Till date no convincing explanation has come from the government or insurance analystsfor this contrast between life and health insurance. Perhaps, the general distress caused to the middle class by the pandemic was at play and probably people opted for immediate health inbsurance more than long-term life insurance.
According to a survey conducted among 400 Covid-19 patients by Prof.Manoj Kumar of JNU, the average cost of Covid-19 treatment was Rs.1,12,179 in government hospitals and in private hospitals it was Rs.2,97,577. Despite a recommendation by a parliamentary panel tothe government to fix a ceiling for Covid-19 treatment cost in private hospitals, the government did not regulate it. Moreover, the ratio of settled claims to total claims shows that around a fifth of claims were not settled in the peak pandemic year. The IRDAI had not evolved any regulation to curb baseless rejection of claims by the insurance companies.
Kumar, who was a senior official in United India Insurance before becoming a CEO of an insurance MNC in Saudi Arabia, told Covid Response Watch, “Instead of jacking up prices using the short-term pandemic, the insurance companies should tap the emerging markets among uncovered independent professionals like tech consultants, plumbers, carpenters, etc. besides affluent farmers and merchants. The government should subsidies Covid insurance cover till the end of 2024.”
The pandemic also became an excuse for insurance companies to delay pending wage revision for employees. Just after leading a demonstration by theJoint Forum of Trade Unions and Associations of Public Sector General Insurance Companies calling for immediate wage revision and opposing privatization in Delhi on 14 March 2022, one of its leaders Trilok Singh talked to Covid Response Watch. He said, “Despite making hefty profits out of the pandemic, the general insurance companies are using pandemic for delaying wage revision to pressure employees to accept privatization. One public sector general insurance company has been targeted for outright strategic sale this fiscal itself. We will oppose this falsehood tooth and nail.”
In an Indian Express article on 28 September 2021, George Mathew had shown that the profits of the general insurance industry in India had increased by 300% in the first pandemic year of 2020–21. He had shown that 17 out of 31 general insurance companies in India had shown net profits in FY21.While the 32 general insurance players posted a net loss of Rs.1402.53 crore in the pre-pandemic year of 2019–20, they posted a net profit of Rs.3868.77 crore in the first pandemic year of 2020–21.
In other words, the tragedy of the pandemic offered a bonanza for the insurance companies. While the people were impoverished by Covid-19, the insurance businesses got enriched.
B.Sivaraman is a researcher based in Allahabad, Uttar Pradesh