Co-pay shifts the bill, doesn’t necessarily cut health care costs: Digit Insurance's Kamesh Goyal
Rising healthcare costs, higher health insurance premiums and claims disputes are testing consumers’ trust in health insurance. As insurers point to opaque hospital pricing and propose that policyholders bear part of each claim through co-payments, customers risk being squeezed further.
In this interview, Kamesh Goyal, chairman, Go Digit Group of Companies, discusses affordability, claims and distribution reform, and why transparent hospital pricing, simpler products and expense rules that reflect the cost of serving retail customers are key to delivering better value.
How can simpler products and clearer claims improve transparency?
After transparency in hospital costs, the next step is product simplification. The customer should know what is covered and what is not. The hospital should know what the insurer will pay, and the insurer’s claims process should become simpler because those boundaries are clear.
Health products are increasingly differentiated through features and bells and whistles that customers find difficult to value. Some additions may sound attractive but do not materially improve protection, while making products harder to compare and allowing a higher premium to be charged.
I would prefer a strong minimum base health product, with additional benefits available as separately priced riders. The customer should be able to see the price of the base protection and the price of every additional benefit. We do not need a large number of substantially similar products if the real differences can be expressed transparently through riders.
We need standard product guidelines that are not complex, and hospital bills can also be standardized. There is no need for every hospital to use a different billing format. Room eligibility and the effect of choosing a different room should be clear. Without simplicity and transparency at these levels, the customer’s experience will not change enough.
How can households get better predictability of premium hikes?
For every health product, insurers could show how the premium has changed over the last five years. Ideally, the increase should be split between the impact of ageing and the insurer’s premium rate revision, which would largely reflect medical inflation, utilisation and claims experience. With greater product standardisation, changes in coverage should not distort this comparison.
At the time of purchase, the insurer should also disclose the age-band structure clearly and indicate the maximum premium increase that could be imposed at one revision, apart from the disclosed impact of moving into a higher age band. That would give households a reasonable basis for planning.
Do new products undermine risk pooling?
Some insurers move claim-free customers into newer products, leaving those who have claimed in the old pool. As healthier customers leave, the remaining pool becomes more expensive, driving up premiums and encouraging further exits. This undermines the principle of pooling risk.
Claim-free customers already receive no-claim bonuses. I would prefer a strong base health product with separately priced riders for benefits such as dental cover, private rooms or overseas treatment.
There are useful principles in European systems where standard or compulsory health protection forms the core and supplementary benefits are purchased on top. India will need its own structure, but the underlying idea of a standard core proposition with clearly priced supplementary benefits is worth examining.
Why are premiums rising despite lower retail loss ratios?
In retail, the loss ratios are broadly around 65-75%. So, if the combined ratio (loss ratio + expense ratio) is above 100%, the remaining cost is clearly not medical claims. Distribution and operating expenses are also material and need to come down. If those costs can be reduced by, say, five percentage points, that should benefit the customer.
But this will not by itself solve the underlying healthcare-cost problem. If healthcare costs continue to rise substantially faster than general inflation, the customer’s premium will ultimately continue to increase even after insurers make distribution and operations more efficient.
That is why blaming one participant will not help. Hospitals blaming insurers, insurers blaming hospitals and customers being asked to bear more through co-pay will merely move the problem around. We have to address both sides of the equation: insurer expenses must become more efficient, while healthcare inflation, treatment variation and hospital costs must become more transparent and manageable.
How can life insurance savings products become easier to compare?
I think the savings side of life insurance is easier to simplify than health. If I buy a savings product, what internal rate of return, or IRR, will I get under the illustrated assumptions? Tell me clearly. With a fixed deposit, I can understand the maturity value and compare the return across banks. Mutual funds can be compared across platforms. Why should comparing two insurance savings products be so difficult? The benefit illustration today can look like a puzzle. Sometimes it feels as though only an AI model can decipher two illustrations and explain which proposition is actually better.
We should have a simpler base product, price riders separately and make the benefit illustration company and product specific enough for the customer to clearly see the IRR under each prescribed illustrated scenario. Once this information becomes readily available in a standard and machine-readable form, comparison platforms will naturally emerge that compare product IRRs, just as consumers compare fixed deposits or mutual funds. That would increase transparency dramatically and make it much harder to sell complex products without demonstrating value.
Will tighter expense limits benefit customers?
Irdai has done well to put the expenses of insurers under scrutiny. Some expenses are difficult to justify, but expense limits must recognise that retail insurance costs more to acquire and service than bulk group, government or crop business. A single expense cap can push insurers to chase low-cost bulk business simply to meet the limit. Competition then drives down bulk premiums, while insurers seek higher margins from retail customers.
Retail health loss ratios are broadly 65–75%, while employer-employee group health can exceed 100%. Retail customers are effectively subsidising large corporate or government customers.
Our management refused to write loss-making bulk business merely to manage expenses. Yet, because we exceeded the expense limit, our key managerial personnel received no variable pay as the company wrote more retail business.
I would recommend expense allowances weighted by business mix for both Life and GI insurers. Older life insurers have big renewal books and also write a lot of group fund management business, this distorts the level playing field. I would push insurers to become more efficient without penalising retail-focused companies or allowing regulation to determine product strategy of a company.
Do the 2023 commission reforms support principle-based regulation?
I am speaking for myself, rather than on behalf of the industry. I would still strongly prefer principle-based regulation. A mature industry should not require the regulator to prescribe every commercial decision. But principle-based regulation does not mean regulation without boundaries.
When the 2023 changes were being discussed, there were concerns that larger insurers would be able to pay more commission and that companies focused on retail could be disadvantaged. Our company argued for expenses of management to be considered line by line.
If the data now shows that outcomes were materially different from what was intended, we should acknowledge that and correct the course. We need to ask whether the objectives were clear, whether the guardrails were adequate and whether outcomes were measured quickly enough.
My view is that we should keep moving towards principle-based regulation, with guardrails. The experience does not support leaving those boundaries out.