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Published in Mint on 4 November 2015, Written by Kapil Mehta
One would expect that with all the competition in insurance, insurers would queue up to sell to you. Unfortunately, that’s not true. The hardest part of buying health insurance is getting the insurer to issue you a policy. Most insurers are risk-averse and would rather reject a healthy person than insure an unhealthy one. In one of the companies I have worked for, the definition of superior performance was “can leap over tall buildings in one bound”. At that time, I had laughed at that statement. However, the joke was on me because insurers seem to be using a similar benchmark to select people to insure.
Consider some of the rejections I have seen over the past few months. A healthy person (to my untrained eye) disclosed in his health insurance application that he was anxious by nature. The insurer promptly declined the insurance and refused to conduct a medical test. A reader of this column wrote about their autistic child. Insurers decline insurance for autistics, even though autism is not a disease in the traditional sense. A 60-year-old lady was declined insurance by three insurers because she complained of knee pain. A friend was turned down because he had lower-back pain even though he had a different insurance by the same insurer for over four years without making a single claim. A young boy who suffered burns because hot milk fell on him, was turned down. If you have had kidney stones removed, many insurers will decline health insurance. Counterintuitively your chances of being insured are higher if the kidney stones have not been removed. A man in his mid-50s was turned down because he had been on mild medication for hypertension. Individuals suffering from multiple sclerosis or epilepsy struggle to buy insurance.
Regrettably, there is little public information on how many applications are declined by insurers but it is high, sometimes as much as 30%. I estimate that over 5 million applications get rejected each year. Such high decline rates create many issues. The purchase process is frustrating because the effort of filling a form, paying and getting medically tested goes to waste. Most just give up after the first rejection. Rejection leads to considerable anxiety. The worry is often unfounded because an insurer’s view of health is more conservative than a doctor’s. The family physician will laugh away a problem that makes the insurance underwriter see the end of days. The cost of rejection is borne by you because medical fees are deducted from the premium refund. Finally, future applications require the buyer to declare that she was rejected and this in turn results in more rejection. It is indeed a vicious cycle.
There is an opportunity for insurers to underwrite more thoughtfully without increasing their risk. There are many examples to emulate. Consider insurance for HIV positive people in South Africa. Over 15% of South African adults are thought to be HIV positive and, a few years ago, over 40% of deaths there were AIDS related. Despite this, insurers issue life and health insurance to HIV positive buyers with no medical tests. Underwriters found that longevity and morbidity of HIV positive people who take antiretroviral drugs regularly is similar to the general population. So, their condition for issuing insurance is that the buyer should regularly take medication. This is monitored by lab reports and other declarations. Non-compliance with medical treatment results in the insurance lapsing. As expected, compliance rates are high. I was struck by the fact that the proposal form for these insurances is just 2-3 pages.
Similarly, in other markets insurers will issue health insurance to women with benign lumps on their breasts because they are precise in the nature of the lumps and its link to morbidity. Birth defects and neurological disorders also get covered.
Until we do more sophisticated underwriting, here is how to buy insurance if you suffer from a health condition.
Select products where the disclosures required are specific and not general. Consider this question in a stand-alone health insurer’s proposal form: “Within the last two years have you consulted a doctor or health care professional?” Steer clear of such general questions because they put the onus on you to declare all medical ailments even if you perceive them to be unimportant. Instead, opt for the form of a competing health insurer who lists out specific diseases and asks if you suffer from those.
Don’t add extra information. You need not confess to having been overweight a few years ago or the fact that you smoked a cigarette once in high school. Pre-underwrite your insurance if you have a doubt. Some insurers will look at your existing medical records and give you an assessment without your making a formal proposal. That’s an good option as a rejection does not become part of your permanent record, and you may approach other insurers more willing to insure you.
Finally, you can buy top-up health insurance that has high deductibles. In these plans a certain initial amount of the medical bill is paid by the patient and the remaining by the insurer. Because of this deductible, insurers will issue these insurances more readily.
What should insurers do? First, dive deeper into why insurances are getting rejected. I often feel that senior management members don’t give enough time to rejections. The customer service executives I speak to are just not able to engage on the problem, and the only reason I sometimes get a fair hearing is because I have escalated the matter to someone very senior. Second, recognize that managing health over years is as important as one’s current health. Develop products that focus on health and lifestyle management.
What should the regulator do? Make acceptance rates on individual insurance public information. A buyer should know the probability of acceptance. There is no point applying for the best designed insurance if it is never going to be issued.
Worldwide, insurers follow one of two underwriting approaches, issuance stage or claims stage. The reference being to when detailed investigations are made. In our case, we seem to have adopted both issuance and claim stage underwriting simultaneously. So, insurances don’t get issued often enough and claims get refused too often. And the insurance buyer faces the heat.