Published in Mint on May 28 2015
Most of us tend to buy health insurance policies later than sooner, when chances of facing health related issues are higher. So, to encourage more younger people to buy health insurance, an expert committee on health insurance has recommended that the premiums reflect risk at the age of entry into the pool.
The committee was constituted in December 2014 under M. Ramaprasad, member, non-life, Insurance Regulatory and Development Authority of India (Irdai) to examine health insurance framework.
Its report, published by Irdai on 22 May, has given many recommendations, including entry age-based pricing (http://mintne.ws/1Faf5Qy). This would mean that a first-time buyer of health insurance would be charged more than a person of the same age who bought health insurance earlier and is only renewing the policy. “This can significantly impact penetration at the market level, and create a structural pull for persistency,” noted the report.
“Currently, the premium for the same age is the same irrespective of when you buy it. The only incentive for staying longer in the policy is the no-claim bonus; but there is no premium discount. With entry age-based pricing, people will not only be encouraged to buy health insurance at a young age but will also stick to policies,” said Sanjay Datta, chief-underwriting and claims, ICICI Lombard General Insurance Co. Ltd, who was consulted on the report.
But the flip side could be even higher premiums for those in higher age brackets.
“If you allow for entry based-pricing, then an insurer will be able to discriminate against older people by increasing their premiums materially,” said Kapil Mehta, executive director, SecureNow Insurance Broker Pvt. Ltd.
Another pricing recommendation is an automatic hike in premiums indexed to inflation. “The pricing aspects in the regulations may be revisited to include an inflation benchmark (CPI; Consumer Price Index + 3%) that allows an automatic increase in premium to take care of medical inflation…. This is a cap and insurer can increase up to this limit. Any higher increase would require the authority’s approval,” said the report.
Inflation indexing the premium would be meaningful if the same is done for the cover, too, say some.
“It would make sense if the sum assured along with the premiums could be inflation indexed. At the time of pricing products, insurers usually factor in medical inflation. So allowing for premium hike alone seems unfair,” said Mehta.
Parity in rules
The committee has also asked for a level playing field between life and non-life insurers. “At present, non-life companies can offer plans of maximum duration of three years while life insurers can offer longer duration products,” said Datta.
In terms of expenses, too, parity between life and non-life companies was sought. The report recommended doing away with caps on commissions and bringing it under the overall expense ratio, which will be decided by Irdai.
Innovation in products
The committee is in favour of products that enable a policyholder to save to meet rising health costs, but not unit-linked plans as these bring exposure to market volatility.
“Tax incentives should be extended to encourage insureds to buy such savings-linked health products to provide for health care costs for long term. Introduction of comprehensive covers including OPD (out-patient department) would also be necessary,” the report stated.
Use of pilot products with limited tenor of five years is suggested to provide coverage for health risks that are excluded now. This would help in checking products viability.
“But after five years, they (insurers) have to confirm it as a regular product that would be subject to the various provisions of implied renewability as provided for in the regulations, should they decide to continue with the product,” said the report.
In a step towards policyholder protection, the report recommended greater disclosure of what’s covered and what’s not “at every customer touch point”.
Apart from these, the report has also recommended that a separate vertical be made within Irdai to look at health insurance so that a comprehensive view can be taken on all health insurance issues, irrespective of the type of insurer. This will create a consistent approach to regulatory aspects of developing health insurance, it said.