1. Health Insurance: Holistic health

Health Insurance: Holistic health

From entry age pricing to payment innovation, an irdai panel has suggested far-reaching changes to current model

By: | Published: June 9, 2015 12:06 AM

Health insurance products may soon see entry age pricing, which means a firsttime entrant would be charged more than a person of similar age who had bought a health cover earlier and has stayed insured. The premium will rise each year, benchmarked to consumer price inflation, and health insurance products of life, non-life and standalone companies will have parity in terms of tenure and pricing.

These are some of the recommendations of an expert committee headed by M Ramaprasad, member (non-life), Insurance Regulatory and Development Authority of India (Irdai). It has also suggested an exclusive vertical to oversee issues and concerns of health insurance companies since it is the fastest-growing segment with total premiums at nearly Rs 17,500 crore as on March 31, 2014.

Entry age pricing

The report says people tend to buy medical insurance in old age, when health-related issues are more frequent. The younger lot usually doesn’t buy health insurance because if they buy a cover when they are older, the implied renewability could be used to their advantage. “It should be ensured that the premium reflects risk at the age of entry into the pool creating an automatic, structural, incentive to attract he younger population and keep them in the insured pool,” says the report.

The panel underscores the need for a level playing field for life, non-life and health insurance companies when it comes to product tenure. At present, non-life and standalone health insurers are allowed to design and sell individual products of up to three years. Life insurers can sell long-term products.

Health savings products

Customers prefer to create a fund for long-term healthcare expenses through a mix of savings and indemnity health insurance. Currently, savings benefits are written by life insurers and indemnity products are mostly written by general insurance and standalone health insurance companies. The committee has recommended that health insurers should offer health savings products where customers can build up a fund to pay for long-term health expenses. “Tax incentives should be extended to encourage people to buy such savings-linked health products to provide for health care costs for the long term,” the report says. However, policyholders should not be encouraged to take unit-linked health products as it exposes them to market volatility.

For such plans, the panel has suggested that the premium paid by the policyholder should be divided into three components: the first towards the risk charge of health insurance, the second towards expenses, including commissions, and the third towards its savings account. The health insurance component shall have a guaranteed renewability for life but the risk charge could vary each year with age and the insurers will have the right to review risk premium rates annually. The charges for expenses and commission shall be guaranteed for the term of the policy, subject to the regulator’s approval.

Pricing of health covers

Under the file and use process, life insurers cannot revise rates for up to three years. On the other hand, non-life and standalone health insurers can revise rates after a year. The panel has suggested that rates should increase to take care of medical inflation and it should be benchmarked at consumer price inflation (CPI), plus 3%. Any increase in rate beyond the benchmark rate would require the regulator’s approval.

The panel has suggested innovation in payment mechanisms, such as premium discounts, which incentivise customers to actively manage their health. Premium discount will also reduce the claim cost of companies in the long run. It has also suggested that restrictions on rider premiums for health insurance contracts should be removed to create a level playing field.

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The current regulatory framework of lifelong renewability discourages innovative products. The panel has suggested a new category of products — Pilot Products — that could go up to a term of five years after which either the product could be regularised or withdrawn by the insurer. Transparency and clarity in health insurance policies will enable policyholders to understand the boundaries of coverage.

The report analysed complaints for 2013-14 and found that 75% of customers’ grievances pertain to either policy terms and conditions or claims relating to policy coverage, limitations and exclusions. The panel suggests that it is necessary to introduce clarity in all health insurance products, whether individual or family floater.

The recommendations

* An expert committee has recommended that health insurers should offer health savings products where customers can build up a fund for long-term health expenses
* It has suggested that the premium paid should be divided into three components: the first towards the risk charge of health covers, the second towards expenses, and the third towards its savings account
* The panel has suggested that rates should increase to take care
of medical inflation and it should be benchmarked at CPI, plus 3%
* The panel has suggested innovation in payment mechanisms, such as premium discounts, which incentivise customers to actively manage their health

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