The Hindu Business Line : IRDA group wants minimum capital trimmed to Rs 25 cr

THE IRDA sub-committee for `stand-alone health insurance companies' has, in its draft interim report, recommended that the capital requirement for such companies be reduced to Rs 25 crore from the current Rs 100 crore.

The committee, which is part of the Insurance Regulatory Development Authority's (IRDA) `Working Group on Health Insurance,' has also suggested that the foreign direct investment (FDI) limit be raised to 51 per cent from the existing 26 per cent.

The group's recommendations are directed towards encouraging the formation of at least 15-16 new stand-alone health insurance companies in addition to the current four public sector general insurance companies. This is the minimum number it believes will be required for the revival of the sector.

The report says that the present Rs 100-crore requirement is a deterrent to stand-alone insurers since a larger capital requirement will bring in additional cost associated with such capital.

The committee adds that the 85 per cent claims ratio along with other variables such as management and commission expenses are a tough call on a health insurance venture.

It has proposed that the FDI limit be raised to 51 per cent.

This could attract global health insurance players and encourage them to take a long-term perspective of their investments in the country.

In a significant move, the committee also recommends that health care providers be encouraged to become equity holders in the new stand-alone health insurance companies.

The common grouse among insurance companies has been the overcharging of hospitals under `medi-claim policies.'

There is also a suggestion to move to a risk-based capital model, which is prevalent in the US.

This approach is designed to adapt the amount of capital and surplus required for an organisation to the individual characteristics of the company's business such as the size, structure and nature of risks retained.

The grading and accreditation of hospitals and health providers are another area of reform that has been broached on. The parameters used to evaluate the hospitals would include medical specialties (evaluated on the availability of equipment, qualification and adequacy of medical personnel).

Health insurance products would also be subject to `prior approval norms' as opposed to the present system of `file and use,' if the committee's recommendations are accepted. "Prior approval norms should be developed for parameters like premium rates, product design, language, reinsurance arrangements etc."

The approval for a product would be for a period of 1-2 years at a stretch.

In terms of distribution, the abolition of the service tax on health insurance products has been recommended. It has also been suggested that income tax holidays be accorded to the health insurance companies for 10 years from the date of incorporation.

According to the committee, Third Party Administrators (TPAs) have not had any success in controlling claim ratios. The report proposes that the current TPA model be re-examined in its entirety.

To build consensus for these recommendations, IRDA is likely to engage the Ministry of Health and Family Welfare, Indian Medical Council, Indian Medical Association, healthcare associations and other bodies.

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