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When the wife of Kishan Negi, an office manager in Delhi, suffered a severe back injury a few months ago, he had to pay Rs60,000 ($1,460) out of pocket for surgery and medicines.

That represented more than two months’ pay for Mr Negi, whose tight budget supports a family of five. In spite of his two-decade tenure in a small office, 53-year-old Mr Negi says wearily: “I’m not saving a single penny.”

Like Mr Negi, the vast majority of Indians must fend for themselves when illness strikes. Those who work for the government or state-owned corporations are covered by public insurance and employees of some large companies come under private plans, but the rest of India’s 1.1bn citizens rarely have any back-up.

The public health system isn’t always of much help. Public hospitals are typically full to capacity and scarce outside of large cities. Private hospitals and clinics can offer excellent care, but are unaffordable for most Indians; notably, private healthcare accounts for 75 per cent of India’s total healthcare expenditure. Government spending on healthcare totalled just $3.7bn in 2001, or 0.9 per cent of gross domestic product.

These conditions are of rising concern as the incidence of “lifestyle diseases” in­creases. India has the world’s largest population of adult-onset diabetes sufferers, due partly to genetic predisposition to the disease. Diabetes, plus heart disease, cancer, asthma and obesity, are on the rise as modernisation ushers in sedentary lifestyles, unhealthy diets, alcohol and tobacco. As the young population ages, the ill-effects of chronic disease are bound to worsen.

The lack of comprehensive healthcare “can have catastrophic consequence for individuals and families, while depleting the nation of productive human re- sources”, Srinath Reddy, president of the Public Health Foundation of India, wrote in a recent local newspaper column.

The gap presents tantalising opportunities for private insurers, who have been allowed to sell policies since 1999, when the state-run Life Insurance Corporation of India lost its monopoly.

More than a dozen private operators and foreign joint ventures, including Max New York Life, Bajaj Allianz, Reliance and Tata AIG, offer life and other kinds of insurance. This spring, HSBC announced a life assurance joint venture with India’s Canara Bank and Oriental Bank of Commerce. Prudential Life Insurance in turn formed a joint venture with ICICI, India’s largest private-sector bank.

Health insurance has been a tougher nut to crack. Some multi-line insurers offer add-on health coverage with limited coverage.

So far the only companies to offer standalone health insurance are Star Health, a joint venture involving Oman Insurance Company and ETA-Ascon of Dubai, and Apollo DKV, a joint venture between the pioneering Indian private hospital chain Apollo Hospitals, and DKV, which is Europe’s largest private health insurer and a subsidiary of Munich Re.

While India’s demand for health insurance is obvious, private players face big hurdles. The fragmented network of hospitals and clinics makes it difficult to offer consistent, quality healthcare. India has 1.5 hospital beds per 1,000 people, compared with 4.3 beds in the average developing country, according to a report from McKinsey and the Confederation of Indian Industries.

Shashwat Sharma, associate director of financial services at KPMG, says: “The biggest deterrent is access to high-quality and cost-effective healthcare. Unless you can build hospitals, where you can control supply, it’s going to be a huge challenge.”

Marketing is another challenge, since few Indians work for companies large enough to consider providing coverage as a staff perk. “In India you have to go to the individual level, so there would be huge distribution costs,” says Mr Sharma.

India still controls market entry. Incoming insurers must have at least Rs1bn in capital and foreign investors can hold no more than 26 per cent of joint ventures.

The government this year however did remove limits on premiums, which helped catalyse the formation of the DKV-Apollo joint venture, according to Jochen Messemer, a director.

Apollo DKV has the advantage of Apollo’s network and established brand. It runs 42 hospitals, 60 clinics and a large retail pharmacy chain. The joint venture’s insurance plans would provide coverage at both Apollo hospitals and 4,000 others across the country. The group hopes to build a sales network of 5,000 agents, and market policies through partnerships with banks and other agencies. The joint venture plans to have offices in 100 cities by 2010, up from six now.

Expanding into emerging markets is a priority for DKV, one of the world’s top five private health insurers, with 7.3m customers as of last year. Its Indian venture, in which it holds a 26 per cent interest, follows the establishment of a joint venture in China in 2005. DKV plans to start a joint venture in South Korea next year.

Dr Messemer says DKV’s partnership with Apollo gives it an advantage over life insurers who “don’t have the expertise to do [health insurance] in an effective way”. Even with competition from large multi-line insurers, “the rest of the pie is still so big”, he says.

Shobana Kamineni, director of Apollo DKV, says: “In spite of compound annual growth rates of more than 30 per cent, private health insurance penetration in India is only 2 per cent. Clearly our country holds tremendous growth potential.”

A queue at the door if reinsurance market opens

Munich Re, the world’s second-largest reinsurer, is preparing to enter India even though foreign companies are still barred from the sector.

Reinsurance is now dominated by state-run General Insurance Corp. But Munich Re is positioning itself to enter whenever the door opens. Munich Re plans to open branch offices “as soon as we can”, said Nikolaus von Bomhard, chairman of Munich Re, on a visit to New Delhi to launch the health insurance joint venture Apollo DKV.

To further its ambitions, Munich Re met the finance minister and insurance regulator in Delhi. Mr von Bomhard was optimistic that India would begin to open the door to foreign reinsurers towards the end of next year. “With all cautiousness, we are pretty positive we’ll see a breakthrough here,” he said.

Munich Re is also in talks with potential domestic partners to form joint ventures in other insurance sectors. “We are in discussion with many groups in India that don’t have insurance businesses,” said Mr von Bomhard.

The liberalisation of reinsurance “is necessary for the stability of the booming insurance market,” he added. Demand for insurance is expected to keep growing at high double-digit rates – currently at 17 per cent for life policies – given existing low market penetration.

“At some point, the government will have to open up [reinsurance],” said Shashwat Sharma, associate director of financial services at KPMG.

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