Inflated hospital bills push up health insurance premiums, says G Srinivasan

Shares of New India Assurance Company (NIA) closed 9.4% below issue price when they debuted on the bourses on November 13. After opening at Rs 748.90, around 6.4% below the issue price of Rs 800, on BSE, NIA shares fell further to close at Rs 675.50 on Friday. In an exclusive interview, G Srinivasan, chairman and managing director, tells Manju AB that the market in due course would realise the value of an iconic company like New India Assurance with huge asset base when they understand the nuances of the general insurance business.

Your listing last week on the stock exchange had an aggressive pricing?

No. I don’t think so because our net worth including the fair value is Rs 38,000 crore. And the price of Rs 64,000 crore works out to 1.77 times of the price to book. I don’t think it can be considered as aggressive considering the benchmark set up in the market. Insurance is a new area specially general insurances it will take sometime to understand the nuances of the business. The market with time will give the due recognition to an iconic company like New India Assurance with such huge assets.

On the health side, there is operating loss. When will you be able to check this?

We have been hard on the corporate health segment and this stand is improving our profitability. While we have voluntarily given up some of the corporate policies, other companies open to price revisions have stayed back with us. In the corporate segment, we have repriced the policies by 20% to 40%.

We have hiked the health insurance premiums by 25% for fresh policies in April this year and for renewal policies, in August. This will continue for the next three years. Retail policy where premiums have been hiked this year will not have any rate increase for the next three years.

In India, only 30% of the population have a health cover, 20% of which is given free by the government or companies. Voluntary health insurance is bought only by 10% of the population .This number has to go up ultimately. It has to reach a number where everyone has a health insurance. We have doctors on board who are scrutinising claims.

In the last one year, how have the new panel of doctors helped?

For the first time, we recruited 20 doctors who whet bigger claims. Inflatef hospital bills have to come down. We have come across instances where the rates were quite high, instances where the line of treatment was unnecessary and, excessive medical investigations were carried out. We have taken it up with the hospitals by telling them it is not acceptable. So, with the group of doctors (we want to increase the number to 40 by next year), we will have strong level-playing ground with the hospitals. Earlier, hospitals were dismissing our complaints. Now, the medical faculty can take up our concerns more effectively.

But, isn’t the claims ratio in health insurance policies falling?

The claims ratio for health insurance is falling but not enough to wipe out the losses. For the first half of the current financial year (FY18), the claims ratio was 102% which means we have collected Rs 100 as the premium but our payout on claims has been Rs 2 more. Yes, it was better than the same time last year when the claims ratio was 112%. Only when the claims ratio reaches 85% will the company be able to wipe out the losses on this portfolio.

Which is the largest health insurance policy you have?

We have introduced a Rs 1-crore policy last year. So far, 100 customers have taken this policy. It is a wide policy covering various contingencies. This will grow further.

Will the new motor insurance service provider guidelines bring down the cost of insurance policies for retail customers?

Motor dealers who were distributing policies were paid very high. They were also being paid outsourcing expenses for the services provided. Now, they have been brought under the regulatory ambit. Payment to them is now standardised, bringing down our costs. We cannot pay them more than 19.5%, and for two-wheelers, the payment cannot exceed 22.5%. More importantly, the dealers will be under the regulatory ambit. Their books will be inspected. It will help the industry to bring down the claims ratio. But, we can pass on the benefits only if the motor owned claims ratio falls to below 65%.

What about losses from catastrophe like floods? We’ve had three flood-related calamities this year.

This year, the losses were not so high despite floods in three states. The net loss in Chennai was Rs 20 crore. In Mumbai, it was Rs 20 crore and in Gujarat, Rs 30 crore. But two years back, Chennai floods brought in more losses. For the industry as a whole, it was a Rs 5,000-crore loss and for us alone, it was Rs 1,000 crore. But we have reinsurance, so, the net loss for us was contained at Rs 50 crore in the Chennai floods then.

Marine cargo and fire may be your profitable segments?

Marine and cargo is about 6% and it generally does well. Our loss ratio is 50% so it is profitable. In fire, the claims ratio was 95% higher than 75% last year, but it was just a one-off. Engineering claims rate has come down to 62% from 77% from the same time last year which is basically the project insurance. When there are catastrophe claims, then the claims ratio jumps. Challenging portfolios are motor and health. In fire, the claims ratio is about 75%.

What is driving your profits?

Largely, the reduction in the incurred claims ratio and the reduction in operating expense ratio which is down to 16.59 % from 20.73 % the same time last year. Our combined ratio is down from 119% to 111% and our adjusted combined ratio has come down from 102% to 93%. This is because our incurred claims ratio has abated. Earlier, the claims ratio was 92% which has reduced to 87.5%. In the first half half, our profits are around Rs 1,250 crore which is a growth of 160%.

Is employee strength falling?

Employee strength is falling but the scale of business is also growing. Our premiums are growing at the rate of 12%. last year we gave out 2.7 crore policies .Employee strength has come down from 20,000 three years ago to 17,500 and the new recruitments are naturally at lower cost. So, the management expenses have come down to 16.59% from 20.73%.