MUMBAI: Public sector nonlife companies are set to revise health insurance rates by 20-25 % with the regulator moving fast on approvals of new plans. A proposal to increase premium rates has been pending with the Insurance Regulatory and Development Authority (IRDA) for some time and the current schedule of rates has been in force for nearly five years now.
State-owned insurers say that their combined ratio in health insurance is over 120%. In other words, the money they spend by way of claim payment and administration costs exceeds premium income by 20%. The regulator is in agreement that the ratio has to improve for the business to be solvent. However , while the PSU insurers say that rates should rise marginally every year to keep pace with medical inflation, the regulator wants them to have consistency in pricing for at least three years.
Since health insurance policies are annual contracts, companies do not charge 'level' premiums like in life insurance and instead calculate premium afresh every year based on the insured person's age. As a result, even without any revision in rate schedule, policyholders end up paying more as they move from one age bracket to another.
The last time insurers revised their schedule of rates five years ago, there were cases where individuals who moved into a higher age bracket got renewal notices for more than 100% of earlier premium. IRDA then issued a diktat stating that premium increases cannot exceed 75%.
PSU non-life insurers have been speaking about increasing rates for several months. TOI had twice reported the impending rise in rates in its November 22, 2012 and July 29, 2012 editions.
Insurance officials said that even after the increase in rates, health insurance would not be a profitable business. According to insurers, the key to improving the pricing is to improve distribution and get more young policyholders . For this, it is necessary to keep premiums low.
Industry officials say that for a young buyer the cost of health insurance is around 2% of the sum insured and continues to be among the cheapest in the world.
In the latest edition of IRDA's monthly journal, regulatory body's chairman J Harinarayan points out to the increased usage of health insurance by a section of the population. "It is also observed that most of the claims in the domain come from a concentrated group of policies, thereby necessitating a high incidence of cross-subsidization . While it would be ambitious to expect that there should be a very high uniformity in the claims occurrence , such a conspicuous skew is undesirable; and would be detrimental to the healthy growth of the industry in the long run," he said.
The regulator added that there is a need for studying and understanding the claims propensity of different crosssections of policyholders; and take steps to even it out to the extent possible.
"Such an analysis would also result in the identification and arresting of various frauds - either unintended or deliberate," he said.
Although private health insurers are growing their portfolios, the individual business continued to be dominated by the four public sector companies - New India Assurance, National Insurance, Oriental Insurance and United India. "A cursory look at the business figures indicates that a major chunk of the business in this sector comes from just a handful of insurers, thereby indicating that a large number of players have either some hesitancy towards this line of activity; or that they are deliberately keeping away from the class, conscious of the tough demands associated with it. For a healthy growth of any class of business, it is essential that all the players play an equally important role and desist from the practice of choosing seemingly simple and profitable lines," Harinarayan said in the journal.
State-owned insurers say that their combined ratio in health insurance is over 120%. In other words, the money they spend by way of claim payment and administration costs exceeds premium income by 20%. The regulator is in agreement that the ratio has to improve for the business to be solvent. However , while the PSU insurers say that rates should rise marginally every year to keep pace with medical inflation, the regulator wants them to have consistency in pricing for at least three years.
Since health insurance policies are annual contracts, companies do not charge 'level' premiums like in life insurance and instead calculate premium afresh every year based on the insured person's age. As a result, even without any revision in rate schedule, policyholders end up paying more as they move from one age bracket to another.
The last time insurers revised their schedule of rates five years ago, there were cases where individuals who moved into a higher age bracket got renewal notices for more than 100% of earlier premium. IRDA then issued a diktat stating that premium increases cannot exceed 75%.
PSU non-life insurers have been speaking about increasing rates for several months. TOI had twice reported the impending rise in rates in its November 22, 2012 and July 29, 2012 editions.
Insurance officials said that even after the increase in rates, health insurance would not be a profitable business. According to insurers, the key to improving the pricing is to improve distribution and get more young policyholders . For this, it is necessary to keep premiums low.
Industry officials say that for a young buyer the cost of health insurance is around 2% of the sum insured and continues to be among the cheapest in the world.
In the latest edition of IRDA's monthly journal, regulatory body's chairman J Harinarayan points out to the increased usage of health insurance by a section of the population. "It is also observed that most of the claims in the domain come from a concentrated group of policies, thereby necessitating a high incidence of cross-subsidization . While it would be ambitious to expect that there should be a very high uniformity in the claims occurrence , such a conspicuous skew is undesirable; and would be detrimental to the healthy growth of the industry in the long run," he said.
The regulator added that there is a need for studying and understanding the claims propensity of different crosssections of policyholders; and take steps to even it out to the extent possible.
"Such an analysis would also result in the identification and arresting of various frauds - either unintended or deliberate," he said.
Although private health insurers are growing their portfolios, the individual business continued to be dominated by the four public sector companies - New India Assurance, National Insurance, Oriental Insurance and United India. "A cursory look at the business figures indicates that a major chunk of the business in this sector comes from just a handful of insurers, thereby indicating that a large number of players have either some hesitancy towards this line of activity; or that they are deliberately keeping away from the class, conscious of the tough demands associated with it. For a healthy growth of any class of business, it is essential that all the players play an equally important role and desist from the practice of choosing seemingly simple and profitable lines," Harinarayan said in the journal.
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