State-owned health insurers to set up common TPA

The four state-owned general insurers will set up a common third party administrator (TPA) as a joint venture to manage health insurance claims, a move aimed at ending the dispute over excessive billing by hospitals.
 
The General Insurers Public Sector Association (GIPSA), an association of the four non-life insurers - National Insurance Co, New India Assurance, Oriental Insurance and United India Insurance - have invited expressions of interest from companies for forming a joint venture TPA, which would act as a facilitator between insured persons and insurance companies.
 
"The GIPSA member companies are keen to partner with a suitable entity, which will be offered stake of up to 26 per cent in the JV," the GIPSA said today.

The association has called for expression of interest from eligible companies to enter into a joint venture with the four insurers, said the association's chief executive officer A K Singhal. The proposed TPA will need upfront capital of around Rs200 crore. The last date for submission of completed expression of interest is 3 September, and the JV is expected to start operations by June 2011.

"Our member companies will together hold 74 per cent stake and the outside partner will be offered 26 per cent. The sharing of equity holding among member companies is expected to be equal, but it may also vary depending on the situation," Singhal said. The four companies intend to form a health insurance claims processing company, commonly called a third party administrator.

According to Singhal, the four companies together hold 60 per cent market share in the Rs8,300-crore Indian health insurance market, which is expected to log 25 per cent growth over the next five years.

Health insurance has not been a profitable segment for many insurers in India, owing largely to a very high claims ratio -- the net incurred claims ratio was over 100 per cent last fiscal, which means claims were higher than premiums paid.

With an average service charge of five per cent on the Rs5,000-crore health insurance premiums earned by the four companies payable to TPAs, the proposed JV would have Rs250 crore at stake.
 
"There will be no de-stabilisation of business for the existing TPAs currently serving the four insurers. The transfer of business to the joint venture will be gradual and based on performance in terms of reduction in incurred claims ratio," Singhal said.
 
As per current thinking, between 50 and 75 per cent of the health insurance premium of the four companies would be transferred to the captive TPA by the third year of operation and up to 100 per cent by the fifth year.
 
The association wants applicants to have a minimum five-year experience in the health insurance industry, a portfolio of having handled 500,000 claims, a net worth of Rs250 crore, and three years of profitable operation over the last five years.