Published in Mint on April 17 2017, Written by Kapil Mehta
I am so glad March is over. It is the busiest month for insurance. In personal lines, particularly life and health insurance, people are in a rush to buy before 31 March, to qualify for tax exemptions. There is no business I have seen that is immune to this last-minute sales pressure. In my first job at Hindustan Lever, now Unilever, we were perennially bothered by the huge amount of toilet soap sales on the last day of the month. It’s not that people bathe more at the month’s end but that all of us area sales managers scrambled to meet our monthly sales targets to avoid the boss pointing fingers at us in the branch meetings. For those of you who suffer from borderline health conditions, the second fortnight of March is the best time to apply for insurance.
Health insurers have some headroom in claims ratios, particularly on personal lines. And they can afford to be a bit lax on underwriting at this time. Insurers are much more willing to ignore the harmful effects of a little extra weight here, or slightly higher alcohol consumption there, when annual targets loom large.
Business or commercial insurance is also trapped in this year-end madness. By some estimates, 20-40% of the year’s general insurance business is sold on 31 March and 1 April. There is no tax rationale for this and the reasons are largely psychological. Companies find it easier to remember and track renewals on those dates. The implication for businesses is to buy insurance on other dates when you can get more attention from insurers.
This time, April, is also chaotic for another reason. A new remuneration guideline that governs payment to insurance intermediaries, such as agents and brokers, has come into force. The extent of discretion that insurers have in deciding total compensation has been increased and most intermediaries are working hard—scrambling may be a better description—to ensure a good outcome.
Because there is so much activity in March, I got more than my fair share of questions from buyers. Some of these questions display a deep ignorance and low trust of insurance. Here are five such questions:
1. Can I buy health insurance for a joint replacement that I need to do this year?
2. Should I buy insurance and not disclose that I take Statins for my high cholesterol?
3. Should I reduce the insured declared value to lower my motor insurance premium?
4. Shouldn’t I just depend on my savings instead of insurance because claims never get paid?
5. Should I buy this life insurance because the agent is guaranteeing a 9% return?
The answer to all of these is, no. The insurer will not pay for a medical condition that is certain to happen. No business person will enter into a transaction that means certain loss. The non-disclosure of a medical condition will almost certainly lead to your claim being rejected, in many instances, even if the claim is unrelated to the non-disclosure. Reducing the sum assured of your car will result in underinsurance. This means that if you reduce your sum assured by 20%, then any claim will also be reduced by 20%. Claims do get paid, particularly in health insurance. In fact, one of the issues that the industry is reeling under is that, for many insurers, claims are more than premium collected, which means there are underwriting losses. Premiums are bound to rise particularly because the public sector insurers, which are dominant in the market, are gearing up for initial public offerings (IPOs) and analysts will look for better underwriting margins.
Finally, nobody, except charlatans, can guarantee 9% over a long term. Ignore these sales pitches.
I am worried about cancer treatment and its insurance cover. Over the past few months some insurers, both in the private and public sector, specifically excluded certain cancer drugs from their contracts. I’ve known about this for some time but the issue came alive for me in March when a relative suffering from breast cancer was told that her insurance would not pay for Herceptin, a drug used in cancer treatment. This makes no sense to me. Herceptin is a vital part of her cancer treatment, administered in the hospital, and approved by doctors in the insurance panel. How can treatment be selectively turned down? The drug is expensive, about Rs70,000 a cycle over 10 cycles, Rs7 lakh in all. I no longer find my favourite New Yorker insurance cartoon funny. It’s a doctor examining a patient’s health insurance policy and saying, “Uh oh, your health insurance excludes illness.”
One of the things that I have wanted to do for a long time is to set up a non-profit that takes up these claims and product issues through regulatory and legal appeal. I think if the issues are brought out to the regulator and the courts in a coordinated manner, policyholder interests would be better protected.
That’s a project for the future.
Another event of March was that Swiss Re published its annual report on catastrophes and disasters. The worldwide losses, at $175 billion, were the highest since 2012. India featured five times in the list of top 20 events with the maximum deaths but not once in the list of top 20 events, where the maximum claims were paid. In 2011, in the wake of the Alabama tornadoes that killed over 300 and had economic losses of over $10 billion, the Secret Sisters sang a lifting, optimistic song called Tomorrow will be kinder. We need a local rendition of that.