Four years after it banned life insurance companies from selling indemnity-based health insurance policies, the Insurance Regulatory and Development Authority of India (Irdai) has now formed a nine-member panel to study the feasibility of allowing life insurers to offer such policies once again.

The regulator had received representations from life insurance companies to allow them to offer indemnity products as well. The Irdai’s panel will be headed by G Srinivasan, director of National Insurance Academy. The panel will submit its recommendations within two months.

A popular category of health cover, indemnity-based health plans protect a policyholder against unexpected medical expenses. The insurer reimburses the actual expense incurred on hospitalisation up to the sum insured. In some policies, the policyholder can even claim reimbursement after visiting a doctor.

Tarun Chugh, MD & CEO, Bajaj Allianz Life Insurance, says allowing life insurers to sell indemnity products will help provide a host of benefits to customers. “Given the low penetration of health insurance in the country, selling the value-packed products through life insurer’s strong distribution network—agents/ partners/ online—will help take the benefits of health insurance to many more customers across the country, enabling them to take care of the expenses arising from critical illness/ hospitalisation.”

Indemnity-based health cover

In health insurance, there are two types of covers—fixed benefit and indemnity-based plans. At present, all the 24 life insurance sell only fixed benefit health plans to the customers. Non-life and standalone health insurers offer both fixed benefit and indemnity-based plans.

In fixed benefit policies, insurers pay a fixed amount which is the sum insured following a claim. In indemnity-based policies, popularly known as Mediclaim insurance plan, insurers reimburse the money spent on medical treatment after the policyholder submits all the hospital bills. The regular individual health plans or family floater plans come under indemnity plans. For instance, if the sum insured of the policy is `5 lakh and the policy holder submits hospitalisation bill of `3 lakh, subject to policy conditions the insurer will pay Rs 3 lakh to the policyholder and the remaining sum insured can be utilised for future claims during the policy term. In case of cashless hospitalisation plan, the insured will have to pay a certain fixed amount and the rest will be paid by the insurer.

The advantage of an indemnity-based based health policy is that it covers a wide range of treatments and illnesses and most policyholders prefer buying such a cover. These plans may also have a deductible, a fixed amount paid by the policyholder for hospitalisation expenses and the rest paid by the insurer.

Health insurance regulations

In 2016, Irdai had banned life insurers from offering indemnity-based health products either as an individual or a group policy. The regulator also stopped life insurers offering single premium health insurance product under unit-linked platform. In fact, the new health insurance regulations, which kicked in from July 2016, have helped differentiate the product offerings by life and health insurers for the first time.

The regulator allowed life insurers to offer long-term individual health insurance products for term period of five years or more. It underlined that the premium for such products shall remain unchanged for at least a period of every block of three years and the premium may be reviewed and modified as necessary. General and standalone health insurers can offer individual health products with a minimum tenure of one year and a maximum tenure of three years, provided that the premium remains unchanged for the tenure.

Santosh Agarwal, chief business officer, Life Insurance, Policybazaar.com, says life companies understand the long term pricing modelling better as they provide coverage in the form of pure term plans for at least 25 – 30 years. “Life insurers may be able to implement the actuarial models and review the price periodically say every five years or so instead of doing it every year. This step will be beneficial for the customers as it will increase several options for them to choose from in order to stay protected.”

If the Irdai panel recommends that life insurers can offer indemnity-based health policies, policyholders should evaluate the pros and cons of both the plans and then opt for the one which suits them best.