Page 210 - Ebook health insurance IC27

The Insurance Times

Institutional failures are in general, caused by lax management, weak corporate
governance, poor central controls and supervision, unsound accounting systems
and other infrastructurecompounded by weaknesses in thelegal framework. Recent
study suggests that companies with huge financial trouble usually had the top
management as the root cause.

Moreover, the complexity of health insurance business, the multiple risks which
health insurers manage, and the market failures, all require an effective top
management role. When regulator mandates a particular level of corporate
governance, level of regulatory involvement can decrease. Mechanisms like
independent directors, actuaries, internal auditors etc are often required.

Thus the complexity of the health insurance business makes it very vulnerable to
poor corporate governance. Regulation monitors and brings out corrective changes
in time to reduce institutional failures.

Regulation also serves to harmonize the activities of various players, and achieve
the desired social objectives, like equitable access to health insurance. Health
Insurance is the ultimate promise to take care of a customer, whereas regulation is
the key to the customer's confidence on the insurer.

Q2. Why a failed health insurer has major repercussions ?
Ans. A health insurer sells a promise to honour a valid claim, and the consumers trust

the insurer and buys the promise. Ifan insurer fails, people may lose their confidence
in the entire health insurance system.

Also, in health insurance, the policy holder has longer term expectations for
continued coverage, as it is difficult to switch insurers. Policy holders who are

214 Guide for Health Insurance