Some private insurance companies have either introduced or are planning to introduce differential pricing for their health insurance products, whereby they will be charging less from people living in smaller towns where medical bills are significantly lower compared to metro cities.
If high premiums have been deterring you from taking a health cover for yourself as well as your family, then here is some good news for you – particularly if you are living in a Tier 2 or Tier 3 city.
Some private insurance companies have either introduced or are planning to introduce differential pricing for their health insurance products, whereby they will be charging less from people living in smaller towns where medical bills are significantly lower compared to metro cities. Bajaj Allianz General Insurance, for instance, has adopted zone-based health insurance pricing in its recently-launched and redesigned comprehensive health insurance policy Health Guard.
According to the company, the zone-based pricing ensures that customers in Tier 2 or Tier 3 cities do not cross subsidise customers in Tier I cities by paying the same premium.
“The primary reason behind some insurance companies switching to geographical pricing is that the cost of healthcare facilities is lesser in Zone 2 and Zone 3 cities. Hence the insurance companies decide their premiums accordingly,” says Naval Goel, CEO & Founder, PolicyX.com.
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As per data from Insurance Information Bureau (IIB), in 2014, India’s top 6 metro cities reported 25% of all the health insurance claims made in the country and these 6 cities received 30% of the total health insurance claim payouts. Furthermore, at Rs 43,324 and Rs 36,034, Mumbai’s and Kolkata’s average claim size was significantly higher when compared to an entire state such as Bihar where the average claim size stood at Rs 10,451. The data, thus, reflects a significant disparity between the cost of healthcare in leading cities and the rest of India. This simply means that the cost of treatment in a metro city is much higher compared to the cost of treatment in a Tier 2 or Tier 3 city or town.
For example, Mumbai is the most expensive city for healthcare. If you go for an angioplasty in Mumbai it will cost you around Rs 4 lakh, whereas the same will cost you around Rs 2 lakh in Kanpur.
Here’s a comparison of the average claim size of certain treatments in a metro city vis-à-vis a Tier 2 city (As per an analysis based on Bajaj Allianz’s claim data):
Traditionally the premium under a health policy was decided on the basis of the coverage offered and the claim history of a certain age-group. However, “today it has become equally important to consider the city that the person resides in or takes the treatment in. To ensure that the people residing in smaller cities and towns do not end up compensating for the ballooning medical cost in the metros, it makes sense to charge the premium depending on the medical care cost an individual is exposed too,” says Abhijeet Ghosh, Head–Health Insurance, Bajaj Allianz General Insurance.
Keeping this in mind, the company has demarcated the entire country in two zones – Zone A and Zone B. Zone A consists of Tier I cities such as Delhi/NCR, Mumbai (including Navi Mumbai, Thane and Kalyan), Hyderabad and Secunderabad, Bangalore, Kolkata, Ahmedabad, Vadodara and Surat, while Zone B consists of the rest of India.
According to Ghosh, customers living in Zone B will pay 15%-20% less premium than those living in Zone A. For instance, a 27-year-old customer residing in any Zone A city will pay Rs 7,027 as the premium amount for a sum insured of Rs 5,00,000, while the same individual residing in any Zone B city will pay Rs 5,621 as the premium amount for the sum insured of Rs 5,00,000.
However, “if a customer residing in any of the cities in Zone B avails treatment in a Zone A city, s/he will have to pay 20% as co-payment on the admissible claim amount. Therefore, customers will now pay the premium that will commensurate to the cost of the treatment he/she is the exposed to in case of a medical exigency,” informs Gosh.
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According to industry experts, this move is expected to increase health insurance cover in smaller cities, where people often avoid buying such products because they find the price too steep.
It is, however, to be noted that every insurer classifies cities into different categories based on their internal assessment and criteria. So, “a city falling in Zone 2 with one insurer may not fall in the same Zone for the other insurer,” says Goel.