Critical Thinking

CHAPTER 2012 book “The Firm: the story of

CHAPTER II

    REVIEW OF
LITERATURE

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2.0 Philosophy of choosing a Career in
Insurance

With the
liberalization, privatization and globalization of our economy, the Indian
insurance industry has taken rapid strides and has emerged as a viable career
option for many of the working population. As a result, not only insurance
agents but also marketers and actuaries are in great demand in the insurance
sector. Insurance Companies deal in two main areas – Life insurance and General
insurance. With the liberalization and opening up of this field several
companies have come up in the field of Life insurance and general insurance.

However, many mainstream business
administration colleges and institutes do not see an influx of students
primarily joining them with an aim to pursue a career in the insurance sector
as by way of choice many current insurance professionals, primarily at
managerial levels “grow” in the field by way of climbing the hierarchy. As
opposed to growing in the field and climbing management levels which takes
immense time, the advantage that a professional degree gives to an individual is
that he or she can easily jump the hierarchies of management after passing out
from a reputed business school programme, and the advantage the company gets is
the choice of choosing the cream from a pool of candidates polished to their
requirements for strategic roles, and developing the best out of the best candidates’
according to their business requirement. According to a review by Duff McDonalds
in his 2012 book “The Firm: the story of McKinsey and its secret influence on
American Business” it denotes that McKinsey holds hiring from reputed Ivy
League schools as a key part of their core strategic investments because it is “easier
to train younger minds rather than hire expensive experience.”

On the other hand, in a study
(Madhusudhan, 2015) surveys indicated that students are reluctant to pursue a
career in insurance as they find the field uninteresting. Such a decision
usually occurs because students are unaware of the underlying philosophy that
governs the insurance industry, the business of insurance, the products that
are developed, marketed and sold in the industry and the important role
insurance plays in the economy by reducing out of pocket expenditure. The main
reasons why students from business schools lack an incentive to deeply study insurance
is the lack of marketing of the insurance industry as a viable field of study,
which in turn leads to a reluctance to engage with giving the profession a
serious thought.

In India apart from the job role
as an ‘insurance agent’, many individuals remain blissfully unaware of the
immense scope in marketing, operations, product development and higher
managerial careers that can make a successful career in the insurance industry.
As such there needs to be a directed strategy towards professional bodies and
educators to form concise and directed courses towards insurance. There do
exist a varied number of insurance institutions in India which have identified
this gap and do churn out professionals in the field. However, the same cannot
be said purely of a course in Health Insurance. Jobs in insurance involve helping
people and businesses manage risk, to protect themselves from disaster and
losses and to anticipate potential risk problems. Employment opportunities in
this area are professionally and financially rewarding. In this sector, there
will be demand for advisors, marketing specialists, customer service
representatives, human resource professionals, etc. Also needed would be
advertising and sales promotion people for image building exercises.

 

2.1 The need for a directed study towards Health Insurance

Health Insurance is defined as the insurance
against the risk of suffering medical expenses among individuals. By
calculating the overall risk of health expenditure among a specific group an
insurer develops a routine finance structure, such as monthly quarterly or
yearly premium or payroll tax, to ensure that money is available to pay for the
health care benefits specified in the insurance agreement. There are various
forms of health insurance in India which provides coverage to the one-fourth of
Indian population. Some of these insurance are mandatory or voluntary or it may
be community based. Mandatory health insurance are usually provided by the
employers for e.g. ESIS, CGHS, and ECHS. Private health insurance are purchased
voluntarily whereas community health insurance are sometimes mandatory or
voluntary to the specific group of the population. These all insurance
contributes towards the health system goal for providing financial risk
protection by reducing financial barrier to get the quality health care. By
pooling of fund, insurance offers the opportunity to distribute the costs
across various stakeholders.

In India the private health insurance started
with the establishment of General Insurance Corporation (GIC). This was
commonly known as Mediclaim insurance policy. In the year 1999 as result of
liberalization privatization and globalization the Government of India allowed
private health insurance company after the passage of Insurance Regulatory and
Development Authority (IRDA) Bill in the year 1999. During the first decade of the sector’s liberalization,
there has been a consistent rise in insurance penetration from 2.71% in 2001 to
5.20% in 2009. However, since then, the level of penetration has been volatile
and remained below the peak (Assocham, 2017).

There are three major weaknesses in the Indian
healthcare system (Peters,2003) such as weaknesses in healthcare organizations,
financing for healthcare, and provision of health care services. Out of all
these issues health financing has remained the most dominant issue. According to WHO
Global Health Expenditure Database (2014) estimates that private health expenditure
as a percentage of GDP is almost at 3.3 percent for India with a world average
of 3.932 per cent of GDP. However in contrast, public health expenditure in
India as a percentage of its GDP is only at 1.4 per cent as compared to the
world average of 5.9 percent. The private insurance industry finds a large
footing in the Indian market because of the gap created by a lack of public
healthcare funding and very few social security schemes which are not enough to
provide extensive coverage.

 

2.2 Growing popularity of Health Insurance Business

As regards to the out of pocket
expenditure as a percentage of GDP, a large 62.4 percent of the population
spends money out of their own pockets and are hence not covered by any
insurance scheme whether private or public as given by the same WHO database.
The out of pocket expenditure world average is at only 18 percent, and as
compared to India shows that the Indian insurance market has a lot of scope in
terms of growth and market expansion in both the private and government sector.
Low insurance penetration in India is evidenced by this fact, and health insurance in
India has gained immense popularity as a major tool for health care financing. The
total insurance penetration
as a whole in 2015 in India was 3.4%, against the world average of 6.2%.
According to the Assocham report(2017), “The number of lives covered under
health Insurance policies during 2015-16 was 36 crore which is approximately
30% of India’s total population. The number has seen an increase every
subsequent year as 28.80 crore people had the policy in the previous fiscal,”
it pointed out.

Awareness of insurance as a means of providing a
cover from out of pocket expenditure especially for hospitalizations is a primary
reason why health insurance is gaining much more popularity. Individuals value their lives and economic
safety. However, health behaviour practiced by many suggests that many
individuals do not make the association between financial security and health
security. This behavioural aspect is a major challenge area for insurance
providers in terms of designing and selling insurance premiums and policies
respectively, and to address this challenge is a primary reason why individuals
are employed as underwriters, marketers or analysts in the insurance sector. Yet
another reason for the growing popularity of insurance policies is the benefit
of tax exemption that is provided to family oriented and individual plans.
Majority of the private insurers also provide lucrative returns and are now
being availed by a section of the Indian society with greater disposable
earnings. There is an aspect of psychological comfort attached to the
insurance policies as well – whenever an insurance is availed the policyholder
can be more or less assured of a safe future for that particular part of his or
her life. 

 

2.3 Key Features of Health Insurance coverage in India

There exists vast difference in
health insurance coverage structure in India and most of the developed nations.
A comparison between health insurance coverage in India and that of the United
States of America highlights the following differences

Mandatory/ Optional

In India it is not mandatory to
get health coverage, as opposed to healthcare cover in the US where it is covered
by the employer. Neither is it compulsory for family members to be covered in
India. It is
compulsory for every individual in the United States of America to be covered
under a health insurance plan and every employer must ensure that each of his
employees is covered under health insurance during the period of employment.

Health Cover

Health covers in India usually only cover hospitalization
and thirty to sixty days pre and post-hospitalization visits to the doctor.
This is as opposed to the coverage system in the USA which includes every visit
to the doctor, be it for something as minute as a viral fever.

Employee Health Benefits

In India, employers have no liability to provide health
insurance cover to their employees. It is a purely voluntary factor and no
employer provides health insurance to an employee upon his/her resignation. A
structurally unemployed person, therefore, will have health cover only if he
has purchased a policy privately or when he finds another job where the
employer chooses to provide health cover to his employees. As opposed to the former,
employers in the United States of America must provide health insurance cover
to their employees, not only during the period of employment, but also in the
case of the employee resignation until he finds another job.

Premium Rates

Premium rates of health insurance are comparatively lower
since the health insurance sector has not permeated through much of the
population and higher rates would further discourage people from getting
themselves insured under the voluntary insurance model followed here. In the
United States of America premium rates of health insurance are higher as more
people are covered under health insurance and the standard of living is much
better.

State-Wise Differentiation

India, not being a federation
like the USA, has the same set of policies for the entire country as a whole,
with no state-wise differentiation or customization. However, USA
follows state-wise differentiation in the case of health insurance policies,
that is, each state has its unique tailor-made set of health insurance policies
that are most suited to that state.

Insurance, like many things,
may be demographical but is most certainly not a geographically regional
requirement. Accidents and death will occur, no matter what part of the city,
country or world one lives in. As a result, insurance needs to be prevalent in
all countries of the world. Indian insurance may be almost two centuries old
now, with its earliest origins in 1818, but it still has a long way to go to be
as potent and as pervasive as insurance in the West.

 

 

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