Four leading government owned non-life insurers in India– National Insurance, New India Assurance, Oriental Insurance and United India Insurance- are collaborating to form a common Third Party Administrator (TPA) to process health-insurance claims. This move is in line with other attempts to control costs, such as the withdrawal of cashless insurance claim facility in several hospitals. The insurance companies hope that a common TPA will bring about improvements in a market rendered inefficient by hospitals that are allegedly over-billing customers who possess a mediclaim policy.
Tremendous losses are being incurred by the above four insurers on the mediclaim policy despite a robust growth rate of 37% experienced by the sector. As insurance premium rates remain competitive, the need is to examine the cost side where claim ratios are as high as 110%.
The lack of coordination between the large number of TPAs in operation at present (there are about 27 IRDA licensed TPAs) has resulted in cost-inefficiencies within the system. The creation of a common TPA with significant bargaining power will allow it to negotiate cost-effective deals with hospitals and focus better on client-servicing. Hospitals can also be made to ensure transparency in their rates.
Not only would this lead to reduced losses for existing players, it may also result in lowering the industry average premium rates, as the benefits of lower costs are passed on to consumers. This implies an increased market size for health insurance as well as a possible increase in market share of public over private insurance players.
Finally, while creation of a common TPA appears to be an effective tool, other reasons behind the losses (such as lenient underwriting laws) need to be considered, together with the possibility of merging the existing TPAs.