Deteriorating combined ratios – a measure of underwriting profitability of a non-life insurance company – of health insurance providers is a major hindrance in reducing premium rates, according to general insurance companies. In the current scenario of underwriting capability and risk pricing, cuts in premium rates are possible only if hospitals slash costs of medical treatment, they said.
“Look at the industry overall. There are combined ratios of 120-125% (in health insurance segment), which means we take `100 from the customers and we spend `120-125. Customers are already getting a great value. I don’t think companies by themselves can do anything today to reduce rates. It’s reflected on their combined ratios and loss ratios,” a top executive with a leading general insurance company told FE.
A combined ratio (loss ratio + expense ratio) is a measure of underwriting profitability of an insurance company after factoring in claims expenses and operating expenses. The combined ratio across the general insurance industry deteriorated to 119% in the first nine months of FY22 from 112% in the same period of FY21 with an increase in health claims due to Covid-19, a report by rating agency Icra showed.
“During Covid, we paid close to `25,000 crore in claims (general insurance and standalone health insurance companies put together). And the profit of the entire industry is less than `5,000 crore. So, we paid five times the annul profit of the whole industry in claims,” the executive cited above said.
Irdai chairman Debasish Panda recently said that a major challenge that needs to be addressed is the high price of health insurance products. Pitching for affordable health insurance covers for all by cutting down the expenses on them, Panda recommended use of advanced technology to cut product costs.
Another senior executive at a major general insurer said during Covid-19, hospitals had raised costs of procedures, but those rates have not come down so far. “Right now the strange thing is that hospitals in India don’t have a regulator. That is crazy and absolutely unacceptable. It is such an important part of the social infrastructure of this country. Irdai needs to allow us some oversight of the hospitals,” the executive said.
Industry insiders said there should be some governance on the way hospitals are run and insurance companies should have the ability to “blacklist” hospitals which perpetuate fraud cases. Measures should be taken to delist hospitals which overcharge patients admitted for treatment with health insurance covers, they added.
Advance technologies such as artificial intelligence (AI) can be used to identify fraudulent cases, where unnecessary medical procedures may have been used for overcharging. Sanchit Malik, co-founder & CEO of insurtech platform Pazcare, said: “Productising underwriting is a major challenge when it comes to selling insurance. And with a heavy distribution network and inflated hospitalisation costs, insurance premiums tend to become higher over time. Technology, when implemented right, can help bring down insurance expenses. Insurtech firms should definitely look at solving for the above two challenges.”
“For Tier II cities, insurance vendors should look at increasing the network hospitals they work with to sell policies at lower premiums,” he added.
Irdai in July empowered insurers to empanel hospitals or healthcare providers, which meet the standards and benchmarks criteria as specified by their respective boards, in order to enhance the scope for offering cashless facilities across the length and breadth of the country.
In order to reduce costs for insurers and allow them to make products more affordable, the regulator in August proposed that the maximum commission or remuneration payable under general insurance products, including health insurance products offered by general insurance companies, should not exceed 20% of the gross premium written in India in that financial year. And, the maximum commission payable under health insurance products offered by standalone health insurers shall also not exceed 20% of the gross premium written, it said in the notification.