In today’s Fenshots, we tell you about the good and the bad if LIC enters the health insurance space.

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The story

Finally it is happeningLic seems ready To jump to the health insurance space. They are planning to buy a significant participation in an existing health insurance company (probably ManipalCigna), which seems a preparation for a complete entry into health insurance. In addition, there is a buzz around a possible “compound license” that could allow life insurers to also sell health policies directly (although initial conversations suggest that it could be limited to private sector insurers).

But regardless of how things develop, let’s imagine that Lic enters health insurance. What probably happens first?

Well, to begin with, LIC will probably spend a significant amount of time only understanding and creating the business. Health insurance is not as simple as life insurance: it needs specialized skills and infrastructure. For example, LIC will have to invest in experts that can design specific health products, understand acting calculations around diseases and develop the ability to manage complex relationships with medical care suppliers, such as hospitals, clinics and diagnostic laboratories.

Health insurance also has a much higher volume of claims compared to life insurance. That means that LIC would need systems to handle a continuous flow of claims efficiently. Once the strings learn, you can start thinking about the impact.

One of LIC’s largest positive ones that enters the health insurance market would be significantly better, essentially, more people ensure.

LIC has one of the strongest distribution networks in India. Imagine this Mass network—14 Individual Agents Lakh, 85 banks, 85 corporate agents, 309 runners and 154 insurance marketing companies (IMF), together with thousands of common service centers. At this time, all sell Lic life insurance products. But if LIC also begins to offer regular health insurance, this complete network instantly becomes a powerful channel to sell health insurance policies as well.

Think about it: If you are already buying a life insurance from an Agent LIC, wouldn’t it be convenient to buy your health insurance from the same person? Most customers really do not differentiate between life or non -vital insurance: what they really want is simple protection against medical expenses. And the demand for health policies based on compensation (the type that directly covers hospital expenses) is enormous.

And Lic could also innovate a little here. Consider “combined products”: policies that combine life insurance and health insurance in a simple package. A unique policy could offer a 50 Lakh life coverage along with a hospitalization coverage of ₹ 5 Lakh. If I could offer you at competitive prices due to your mass scale, we could see a change of sea in the industry.

But not everyone is happy with these developments. General insurance companies and independent health insurers have expressed concern for allowing life insurance companies to sell health policies.

One of his biggest concerns is cross subsidization.

Think about it in this way: because LIC manages a highly profitable life insurance business, he could offer health insurance products to lower premiums channeling life insurance gains to health insurance.

For example, Imagine Lic wins ₹ 100 million rupees in earnings annually of your life insurance segment. It could be allowed to use part of this gain, for example, ₹ 20 million rupees, to subsidize health insurance premiums. So, if other independent health insurance companies are charging ₹ 10,000 per year for a similar policy, LIC could offer it to only ₹ 8,000.

While consumers would love this cheaper price, it could trigger a price war. The competitors, forced to match the raw lows of LIC, would see their margins to reduce dramatically. This could destabilize the industry and negatively affect profitability between independent and general insurance companies.

But here is the thing: the general insurance companies in India already sell different types of policies such as health, engine and travel insurance together. These policies are already subsidizing to offer attractive prices. And yet, this has not caused real problems or important interruptions. In any case, customers have obtained better more affordable offers and policies.

Therefore, it is difficult to argue that cross subsidy is a negative network. In any case, it could actually be good news, which leads at lower prices and a healthier competition in general.

But there is another argument against allowing LIC or other life insurers to sell health insurance based on compensation and relates to regulatory stability and investor confidence.

Here is some context: Until 2016Life insurers in India sold health policies based on compensation, this is the type that directly covers hospital invoices or medical costs through reimbursement or facilities without cash. But in 2016, the regulations changed. Life insurers were restricted to sell only fixed benefit policies (such as a critical disease).

For example, instead of paying real medical invoices, these policies pay a default amount when a specific event occurs. For example, if you have a critical disease policy and diagnose cancer, the insurer could pay a global sum of ₹ 10 Lakh, regardless of what their real medical expenses are.

This is very different from health insurance based on compensation, where its insurance covers real expenses, either ₹ 50,000 for minor surgery or ₹ 5 Lakh for an important procedure. And that is why the change of rules of 2016 was significant: he forced life insurers to leave the full health insurance space, leaving that business exclusively to general and specialized health insurers.

Now, reverse this policy after a few years may seem unfair to investors.

The only positive side for existing insurers is that the compound license cannot be granted to LIC. If that happens, Lic would have to operate like any other health or general insurance company. While they would still have the advantage of their mass distribution network, the other benefits we discuss, such as grouping health and life insurance or taking advantage of cross subsidization, do not materialize.

So, yes, we will only have to wait and see how LIC decides to take advantage of the health insurance market.

Until then…

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