Chennai: Asian life insurance giant, Life Insurance Corporation of India, hopes to mop up around Rs5,000 crore selling its novel unit-linked health insurance policy.

Interestingly, its three-months target is more than the Rs3,200 crore in health insurance premium earned by the 13 Indian non life insurers - 12 general insurers and one specialised health insurer - during 2006-07.

Hoping to get Insurance Regulatory and Development Authority''''s (IRDA) sanction for the product soon, LIC plans to launch its product some time in December 2007 or January 2008.

The timing is also right as January-March are busy months for life insurers as people buy policies to save on their taxes. With an army of around 10 lakh agents LIC plans to sell around 1 crore policies during this period.

To cope with the expected sales, the life insurer''''s technology team is already getting the software ready to sell the product.

Declining to comment on the product features G N Agarwal, executive director (actuarial), says, "We have filed the product with IRDA. They have called us for a meeting on the subject. I am not in a position to detail you anything more about the product."

It is learnt LIC''''s unit-linked health insurance policy will be a combination of hospital cash (fixed sum paid to the policyholder daily when admitted into a hospital) and surgical benefit (a lump sum towards list of surgeries covered under the policy).

The proposed health insurance will be a long-term floater policy whereby for a fixed sum insured the principal policyholder can cover himself, spouse and two children.

It is also learnt the primary insurance cover will be hospital cash. The value of surgical benefit would be arrived as a multiple of the hospital cash.

As in the case of unit-linked life insurance policy (ULIP), some portion of the annual premium would go towards investments. The corpus thus built could be withdrawn by the policyholder or be accumulated till death.

On the death of the principal policyholder, the spouse would become the principal policyholder and could use the balance in the fund.

On the death of the spouse, the fund balance would be given to the nominees or legal heirs.

Challenging target
While the concept of unit-linked health insurance is interesting, is this target of earning Rs5,000 crore in three months from crore policies, an ambitious one?

"No," says D D Singh, executive director. Citing the earlier success of Asha Deep and Jeevan Asha policies that covered a list of critical illness, he adds, "The future is in health insurance."

A 1977 batch officer cadre recruit, the 53-year old Singh is charting LIC''''s entry in to health insurance foray sitting in Hyderabad. He has more than a decade''''s experience in marketing at branch and divisional office levels, apart from working in LIC''''s information technology, and training divisions.

Singh is betting on LIC''''s army of ten lakh agents and an existing client base of 17 crore policies. Moreover, the productivity of LIC''''s agents in terms of number of policies sold in a year is high, averaging around 37, compared to the agents of private life insurers.

"Would life insurance agents be really interested in selling a health insurance policy where the ticket size is normally lower than a life policy?" asks S S Gopalarathnam, president, operations, Cholamandalam MS General Insurance Company Limited.

A life insurance agent gets around 40 per cent commission on the first year premium when he sells a life policy. On the other hand the commission paid by non-life insurer on its health insurance policy is not more than 15 per cent.

"The intensity of post sales service in the case of health insurance is high as compared to a life insurance policy. Given the ticket size, the commission rate and post sales service, it is doubtful whether a life insurance agent would be enthused to sell what is primarily a non-life product," adds Gopalarathnam.

What he says may hold true for private life insurers who pay their individual agents around 40 per cent of the first year premium as commission up to 70 per cent for bancassurance / corporate agents.

According to Singh, LIC has priced its health insurance product taking everything into account.

Adds Agarwal, "Unlike other Indian life insurers, the commission paid to our agents on selling life policies is low."

The average commission paid by LIC on traditional policies is around 25 per cent and in the case of ULIP it is around 15 per cent.

"The commission rate on our proposed health insurance will also be comparable," he says.

The proposed health insurance policy is expected to increase the average premium per policy of a LIC agent and in turn his income.

Remarks R Ramakrishnan, consulting actuary and former executive director (Actuarial) LIC, "If the product catches the imagination of the prospect no agent can say no to a product."

In addition the policy could also be sold through LIC''''s growing bancassurance route. The corporation has 37 bancassurance partners and is working on referral arrangements with other banks.

Perhaps LIC''''s health insurance policy may eat into the sales of normal ULIP and that too of private life insurers.

Towards smoother claims settlement
In order to have a faster and smoother claims settlement - unlike the non-life insurance industry - LIC has restricted the role of third party claims administrators (TPA) to claims processing only.

The TPA would first advice LIC on the permissibility of the claim. "LIC would in turn instruct a select group of bankers to issue the claim cheque to its health insurance policyholders," explains Singh. LIC has tied up with Syndicate Bank, Axis Bank (formerly called UTI Bank) and Bank of America for issuance of claim cheques to health insurance policyholders.

"We have drawn strict level agreements with the TPAs whereby identity cards and claims processing should be done within a stipulated time," explains Singh.

This way LIC avoids the problem of funding the TPA to settle the claims as it happens in the non-life insurance sector.

It should be noted that in the case of non-life insurance sector, the minimum time taken to process a claim by the TPAs is one month.

"Claims cheques will be issued within 24 hours of the claims approval," assures Singh.

Lack of data a challenge
For LIC''''s appointed actuary Agarwal, designing the product was bit of a challenge in the absence of reliable morbidity data specific to India.

Agrees Ramakrishnan, "In India there is no data that tells the number of times a person falls sick, in order to be able to design a long-term health insurance policy. It is a great challenge for any actuary in India."

To overcome this crucial handicap, Agarwal and his team used the morbidity experience of UK and South Africa.

With its event-based health insurance compensation policy, LIC has to some extent has escaped the bane that the Indian non life insurers suffer, which is the negative moral hazard of policyholders, hospitals, doctors and others in the healthcare chain.

The non life insurers have to contend with fraudulent health insurance claims as their policies deal with reimbursement of expenditure.

Is there a downside?
The downside of LIC''''s policy is that the policyholder is tied to a sum insured chosen at the time of taking the policy for a long term.

"What LIC would offer is a long-term document. A policy that does not factor inflationary trends in health care costs will not be of much help to a policyholder in the long run," feels K N Bhandari, former chairman and managing director, New India Assurance Company Limited, and secretary general, General Insurance Council of India.

According to LIC''''s Singh, LIC''''s health insurance product need not be a direct competition to the non-life insurers.

"The existing health insurance policyholders can also take our policy as it is beneficial. If a policyholder suffers some life critical illness like cancer, kidney failure, etc, then the entire family''''s wealth is wiped out during the last six months of the patient''''s life. Our policy will help to meet such contingencies."

LIC would pay the agreed fixed sum even if its policyholder holds a separate mediclaim policy, while non-life insurers contribute proportionately to the claim when a policyholder holds more than one mediclaim policy

Singh says, "The Indian insurance market is also getting ready for co-payment of expenditure where the insured is made to share part of the claim amount. "In motor insurance the concept of co-payment has been in vogue for the past several decades."

Today the non life insurers are making their policyholders share some part of the hospital bill.

Meanwhile Singh and Agarwal are gearing themselves to meet IRDA officials who have called a meeting some time this month to discuss the health insurance product.

If all goes according to its plans, LIC seems to have a winning product on its hands. Realising this, it plans to launch some more health insurance products.