Medical Insurers Stop Cashless Facility

The article presents an example of how the consumer stands to lose out in another battle (cold war) between two corporates/ industries. Insurance companies have withdrawn their cashless facilities from several high end hospitals.

The issue is twofold. On part of the insurers, they believe that hospitals charge differential rates from patients with and without a medical insurance policy. Most private insurers are making loses, the industry as a whole is also incurring huge losses. In this scenario, it only makes business sense for the medical insurance companies to cut corners wherever possible. More so, the move seems reasonable as it still does not deprive the insured from getting treatment. An interesting aspect to look at would be how insurance companies can exhibit this to be a loss for the high end hospital chains in the long run and get them back on the network. As a matter of fact, this is a loss for the high end hospitals as they stand to lose out on many of the customers with medi-claim policies. Some of these customers would now transition to other hospitals helping them build bigger business. Over time, these other hospitals may present tough competition to the current leaders in the business. No doubt, losing high end hospitals, would damage the brand recognition of insurance companies. But, a win-win situation can be created if the high end hospitals realize what they stand to lose in the long run.

On part of the consumers, it presents a problem with no quick solution in the offing. Several people might be taking up particular insurance policies because of their association with some of the high end hospitals. Especially those people, willing to obtain treatment only from the high end hospitals would be worst hit. To add to the medical woes, they would now have reimbursement hassles to take care of. Moreover, there is an added subjectivity with respect to the claims processed.

This can lead to two situations. If the cost of insurance (premiums) remains constant, private insurance companies might end up losing customer base very quickly. Additionally, they also stand to dilute their brand value. On the other hand, a more strategic approach by these firms could be to project their products differently or even restructure them, to appeal to a different segment of people.

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The Fortis-Parkway tale

Fortis Healthcare has pulled out of the fight for Singapore based Parkway Holdings, with a profit of Rs. 380 crore on a Rs. 3400 crore investment made 4.5 months ago.

For sometime, Fortis had been looking to acquire a partner to grow in the pan Asian market. Finally in March 2010, Fortis bought TPG’s 23.9% stake in Parkway holdings, and subsequently consolidated it to 25.4% stake. The Malaysian fund Khazanah announced a partial offer to buy 27% stake at $3.78 a share to take its control of Parkway with 51.5% holding. Fortis increased their offer to buy an extra 75% of the stake at $3.8 a share. Finally on July 26, Khazanah made an offer to buy all the 76% stake at $3.95. Fortis then withdrew from the bidding competition and agreed to sell its stake to Khazanah.
This has been labelled as a very smart move by Fortis, as trying to exceed the recent Khazanah bid would have been a stretch on Fortis’ balance sheets, as even the $ 3.8 a share was a tough call. In the 4-5 months they spent on this deal, not only did they come into touch with many healthcare companies that are interested in partnering with them in Singapore and Asia, but they also made a lot of moolah for the shareholders’ benefit. They will probably soon continue with their expansion plans with a different vehicle, wiser minds and heavier pockets.
Source: The Economic Times

Legacy plan for Commonwealth Games

In December, 2009, the The Sports Authority of India (SAI) announced a plan to create a legacy for the 2010 Commonwealth Games being held in Delhi. It enlisted the services of Feedback Ventures, an infrastructure services consulting firm, to create a roadmap for the stadiums once the Games are over.

A legacy plan is typically made before the construction of the stadiums are commenced to ensure that the construction is done to ensure optimum use of it after the tournament is over. However, in the case of the CWG Games, the plan was announced late considering that the construction of the stadiums was already underway.

In a recent announcement, the Centre has finalized a plan to lease out five major stadiums (JN Stadium, Indira Gandhi Sports Complex, Major Dhyan Chand National Stadium, Dr Syama Prasad Mookerjee Swimming Pool Complex and Dr Karni Singh Shooting Range) for a period of 10 years to bidding companies once the Games are over.

The companies which finally obtain the lease will be permitted branding rights of the stadium, to hold concerts and sports-related events and academies, and to sub-let the stadium for various events. The ministry and the SAI held a meeting with representatives of several companies such as Reliance IMG, Coca-Cola, Wipro, 21st Century Media, some of which are supposed to be interested in the final bidding.

This public-private partnership is expected to generate a steady stream of income for the government. This money can be used by the government to develop sports in India and could also be used by sports management firms to conduct events such as the IPL.

Source: Business Standard

Aon to buy Hewitt

Aon Corp will spend $4.9 billion, issue 64 million shares and pay a 41 percent premium, to buy Hewitt Associates Inc, in an aggressive, pre-emptive bid to beat archrival Marsh and McLennan. This deal would create the world’s largest human resource services company. It even surpasses the $4 billion Towers Perrin and Watson Wyatt merger in January 2010.

In recent times, there has been a trend towards consolidation in HR for the purpose of cost cutting, greater efficiencies and larger scale. Aon had been looking for opportunities to expand its consulting business, and to become the biggest, Hewitt was the obvious choice, especially with its good brand. There is not much overlap in the clientele of Aon and Hewitt as Aon focuses on middle-market companies while Hewitt focuses on large companies.

In 2009, the revenue of Aon’s consulting business was about $1.2 billion, which is expected to grow to $4.3 billion with the addition of Hewitt consulting. Aon also expects to generate about $355 million in annual cost savings in 2013, primarily from reduction in back-office areas.

The deal is expected to close by mid-November.

Source: http://www.reuters.com/

Public sector insurers to push for TPA

Four leading government owned non-life insurers in India– National Insurance, New India Assurance, Oriental Insurance and United India Insurance- are collaborating to form a common Third Party Administrator (TPA) to process health-insurance claims. This move is in line with other attempts to control costs, such as the withdrawal of cashless insurance claim facility in several hospitals. The insurance companies hope that a common TPA will bring about improvements in a market rendered inefficient by hospitals that are allegedly over-billing customers who possess a mediclaim policy.

Tremendous losses are being incurred by the above four insurers on the mediclaim policy[1] despite a robust growth rate of 37%[2] experienced by the sector. As insurance premium rates[3] remain competitive, the need is to examine the cost side where claim ratios are as high as 110%.

The lack of coordination between the large number of TPAs in operation at present (there are about 27 IRDA licensed TPAs) has resulted in cost-inefficiencies within the system. The creation of a common TPA with significant bargaining power will allow it to negotiate cost-effective deals with hospitals and focus better on client-servicing. Hospitals can also be made to ensure transparency in their rates.


Not only would this lead to reduced losses for existing players, it may also result in lowering the industry average premium rates, as the benefits of lower costs are passed on to consumers. This implies an increased market size for health insurance as well as a possible increase in market share of public over private insurance players.


Finally, while creation of a common TPA appears to be an effective tool, other reasons behind the losses (such as lenient underwriting laws) need to be considered, together with the possibility of merging the existing TPAs.



[1] Rs 1,500 crore annually on a yearly premium collection of Rs 6,000 crore on mediclaim policies; [2] FY(2002-2008), Compounded Annually; [3] Thereby ensuring that revenue is high

ATK and Booz merger called off

We had previously spoken about a possible merger brewing between AT Kearney and Booz. After a month of speculation, raised eyebrows, questions and doubts in the consulting community, finally the news is out. The merger talks have been called off as both the firms released a joint statement on July 6, stating that their future aspirations were too different from each other for them to take this forward.

3G – Bidding Strategies

The recent 3G auctions saw various operators compete fiercely for the three licenses to operate 3G in 22 circles in India. The government raised a whooping Rs 67,719 crores from the process. The bid values exceeded the DoT expected valuation of 2x to 3x the reserve prices and the average bid was 4.8x the reserve price (representing Rs.16,571 crore for a pan-India license). Finally, none of the operators bid for the pan India licenses but opted for select circles. In this article we try to analyze the strategy behind the choice of circles by the bid-winning operators.

Bharti Airtel

Bharti Airtel, India’s market leader, won 13 circles which cover 59% of India’s cellular subscribers—the maximum 3G-coverage any telecom operator has managed. These circles account for 61% of Indian telecom revenues. The nine circles where Bharti has lost the license, its ARPU is 15-20% lower than the national ARPU. Bharti has a unique advantage that large parts of its networks are already 3G-enabled lowering deployment time and capex required.

Vodafone

Vodafone India seemed to have followed a ‘defensive’ strategy like Bharti, by acquiring spectrum in key markets, 9 circles for Rs 11,617 crores, while foregoing a few big circles where it does not enjoy leadership or has a substantial difference to the leader like Karnataka and Rajasthan. Vodafone’s strategy clearly seems to be focusing the entire kitty that they have on the top circles so as to actually make a meaningful business out of the 3G friendly circles or circles with uptick.

Reliance

Reliance Communications (RCOM) bagged 3G-spectrum in 13 circles including all the metros and category ‘C’ circles. Reliance Communications put up an aggressive show in the 3G auctions implying that RCOM may dilute equity to fund the payout. The tower business looks to be the likely source of dilution. The company plans to strongly leverage its media, gaming, cinema and broadcasting capabilities to offer its customers a unique 3G-experience.

Aircel

Aircel, 74% owned by Malaysia’s Maxis, with a strong presence in Southern and Eastern India concentrated on circles like Tamil Nadu and the North-East. Its main focus was to ensure contiguity – presence in all the southern circles and Assam, West Bengal, Bihar and Orissa. Aircel’s strategy helped it to defend 93% of its revenues. Airtel and Aircel won 13 circles each but Aircel paid only half of that paid by Airtel. Aircel’s bid is still aggressive at 1.5 times its annual revenues.

Tata Tele

Tata Tele was able to capture only 9 circles, which are mostly in category A and B, enabling it to protect its presence in 43% of it 2G revenue-generating areas. Tata Tele’s 3G coverage of its 2G footprint is the lowest among the six successful bidders. Tata focused on obtaining contiguous licenses in the Western parts of India, while avoiding Category C circles to maximize capex utilization.

Idea

Idea Cellular, the 3rd largest GSM mobile service operator won 3G spectra in 11 circles. Idea went for higher geographical coverage and avoided the metros, especially Delhi and Mumbai, which saw the most aggressive bidding. It managed to win licenses covering 77% of its subscriber base and its 3G Spectrum footprint covers 81% of the total national revenues.

CDMA operators viz. Reliance and Tata Tele plan to leverage the EVDO services already available on their CDMA network. EVDO services are ones that are available on data cards and are almost equivalent to 3G services. Their strategy would be to combine the prowess of CDMA and GSM technologies to provide seamless high-speed data access on dual mode handsets.

With none of the private teleco’s having a pan India 3G presence, roaming agreements between the different operators would play a vital role in recovering the huge license bid amounts. The state owned BSNL and MTNL are in huge demand as parents for roaming agreements.