The Hindu Business Line : PSU insurers unhappy with TPAs — Mounting claims ratio, poor customer service

FACED with mounting claims ratio on mediclaim policies, the four public sector insurers have sought a complete review of the functioning of Third Party Administrators (TPAs).

Sources said that all the four PSU insurers - New India Assurance Company Ltd, United India Insurance Company Ltd (UIICL), National Insurance Company Ltd and the Oriental Insurance Company Ltd were upset with the functioning of the TPAs.

Sources said that the claims paid out for the last fiscal year was in excess of Rs 1,200 crore, implying a claims ratio in excess of 150 per cent. This ratio implied the excess of claims made over the premiums collected.

The sources said that the TPAs were expected to help contain these high ratios through a mechanism of filtering. However, they added that the TPAs had failed in containing claims, two years after the entire mechanism began functioning. The sources said, " TPAs have only pushed up tariffs on mediclaims up by 6 per cent." The 6 per cent loading on mediclaim premiums was an agency commission for the TPAs and intended for covering costs.

The deterioration in the performance on the mediclaim portfolio was despite the incentive mechanism built into the contractual agreements between insurers and the TPAs for containing claims ratio. These incentives range between 10 per cent and 20 per cent, for claims between 60 per cent and 30 per cent respectively of the premium collection. In fact, the insurance regulator, which had pushed through the TPAs mechanism, had argued that the claims ratios in medical insurance would substantially reduce.

Besides, the sources said that services to the customers had lso failed to improve. The efficiency of claims settlement haddeteriorated. In fact, claims settlements faced inordinate delays, the sources added. This was despite the opening of `claim float account' by insurers for settling claims.

This deterioration in performance has already provoked UIICL to audit the usage of the claim float funds of some of the TPAs under it. The sources said that the auditor's reports were extremely revealing and virtually confirmed that the TPA mechanism was not working as efficiently as it was envisaged to be. In fact, in some cases, the auditors pointed discrepancies in the claims settled and the amounts drawn from the float funds.

Technically, the insurers could disallow certain claims after verification, although the TPA made the settlement out of the float fund. However, this verification could be done only after the TPA furnished the data. Few TPAs passed on data of claims made to the insurers, the sources said. This was partly on account of fears that in the event of the claims being rejected, the refunds would have to be met by the TPAs themselves. But the sources said that in the event of claims being disallowed, insurers were in a position to encash the bank guarantees provided by the TPAs. The sources said that that some of the insurers intended doing precisely this if TPAs failed to comply with their obligations.

The sources added that TPAs' reluctance to pass on the customer data back to the insurers had now resulted in major problems preventing the insurers from loading the premiums to segments where the claims ratios were high.

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