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While Covid-19 is being treated for free in government hospitals, as the number of cases rise, private hospitals will increasingly come into play. “We expect hospitals to see a 100-120% utilisation of capacity,” said Dr Prakash. On average, mature hospital chains like Apollo and Fortis see 60%-70% occupation.

But with no standard operating procedure or price for treatment of Covid-19 in private hospitals, the disease is also shining the light on the health insurance sector’s vulnerabilities.

Insurance’s Achilles heel

Insurance’s Achilles heel

Insurance is a pool of risk. On a good day, less than 10% of policyholders claim the majority of the premium. But if the claim amount or the number of people making claims changes, it spells trouble. With Covid-19, it’s both. As it is, insurance companies work on very thin margins, so the sector usually is not able to absorb too much of a shock.

“When we have a bad monsoon and the claims increase by two percentage points, that wipes out a third of our profits,” said a senior executive at HDFC Ergo Health Insurance. Insurers generally see a spike in claims during the monsoon season because of a rise in cases of dengue, malaria, and cholera.

Another important source of income for insurers is investments. But insurers are restricted when it comes to what they can invest in. “We are not allowed to invest in risky assets, only in bonds, and that is also going down now (due to the economy). So we are in the worst possible place,” the senior executive explains.

Covid-19 is also bringing a long-standing problem to the fore—India’s healthcare prices are not regulated, but insurance prices are. As a result, Covid-19 treatment prices in hospitals range from Rs 70,000 ($918.9) to Rs 7 lakh ($9,189.2). The severity of cases also varies. About 80% of Covid-19 cases are mild and need about five days of hospitalisation, while 15% are moderate, and 5% severe.

“This makes it very hard for us to price our policies,” said Dr Prakash of Star Health. “That is why we have been urging hospitals to adopt a standard operating rate.”

Hospitals charge like hotels, said a senior executive from HDFC Ergo. “A hotel can charge Rs 25,000 ($328.2) or Rs 10,000 ($131.3). Nothing stops them. But the amount of profit we can make is linked to the hospitals’ pricing. So if there is a wide variance in price, our loss ratio can go wonky.”

Pernicious burden

Of the 100 claims Star Health saw, 14 are confirmed and the rest are suspected cases. Dr Prakash is worried about the suspected cases as they can add to the burden of people rushing to hospitals, undergoing treatment on suspicion and claiming insurance. ‘This population is nearly six-fold and we get all that additional volume. It is a pernicious burden,’ he said

IRDAI keeps a close eye on insurers’ loss ratios and takes action if it crosses a threshold. “If the loss ratios fall below 60%, IRDAI asks us to change the price as it feels insurers are making too much of a profit on a policy,” added the executive. HDFC Ergo has not launched a Covid-19 policy yet.