Buying health insurance in India? Think again.

It is generally understood that buying health insurance is a good investment.  But is it? At the end of the day, it is a good investment only if the insurance company makes good on any claim you file. And that is a big IF. But as the data shows, insurance companies are notorious for not paying claims. They make it extremely easy to buy but very hard to get a claim paid. Let's examine this in more detail.

It is important to note that there are 2 classes of insurance buyers - a group policies, and individual policies. A group policy is bought by employers for its employees, whereas individual policy is something you buy for your family or yourself. Insurance companies deal with these two classes separately. 

In India, IRDA is the regulating authority. You will find a lot of information buried in their annual reports. In my ample free time, I was reading their most recent 318 page report. Here are some interesting facts:

1. There are 4 govt. owned insurance companies that have 58% market share in non-life insurance business (which includes health, fire, marine, motor, and other)  whereas 16 private insurance companies have the remaining 42%. For example, ICICILombard has only 9.74% market share.
2. The govt. owned insurance companies saw an increase in 31% year-over-year in the number of policies, whereas the private companies saw a mere 15% growth. This shows that the public trusts the govt. owned companies more than private companies.
3. Health insurance is growing at 30% annual rate over the last decade.

Incurred Claims Ratio - From IRDA Annual Report.

You will understand how the insurance companies deal with these two classes when you look at the columns "Group Insurance Schemes", "Family Floater schemes", and "Individual insurance" in the incurred claims ratio of the IRDA annual report for 2012-13. The family floater is the one that is typically bought by individuals for their families, and the individual policy is for oneself only.

1. Private Insurance companies have a 92% incurred claims settlement ratio for group insurance, but only 71% for family floater policies, and shocking 49.5% for individual policies.

2. Govt insurance companies have 109% incurred claims settlement ratio for group insurance, but only 77% for family floater policies, and 101% for individual policies.

Why is this? From this data, it looks like the insurance companies are more than happy to pay the claims from group insurance rather than family policies. There is a steep 20% difference in incurred claims ratio. This is obviously due to the bargaining power of employers when compared to individuals buying for their families. 

For individual policies, the payout from private insurance companies is half as likely. The individuals are indeed getting a very raw deal from private insurance companies, and this is something the IRDA needs to investigate. 

What does this mean for individuals trying to buy health insurance? Be careful and don't rely too much on your health insurance.  The likelihood of getting your claim paid is rather low. Build your own corpus to pay for hospitalizations when your insurance doesn't pay. In the next post, I will discuss some alternate ideas on how to protect you and your family.