Health Insurance policies offered by Life Insurance companies

Traditionally in India, health insurance has been mostly offered by the general insurance companies or by the specialized health insurance companies. Of late however, we have seen that the life insurance companies have become very active in offering health insurance. Earlier, at best they would have a critical illness rider on their health insurance policies or a daily hospitalization allowance rider. But in the last year or so, this has undergone a significant change. Today, we see companies such as AEGON Religare Life Insurance, Aviva Life, ICICI Prudential etc aggressively promote their health insurance plans.

IRDA, under pressure from SEBI, to reduce charges on Unit Linked life insurance products, has rung in some sweeping changes on the structure and charges of these products. Somewhere along the line, life insurance companies started reducing the weightage on the protection component of the ULIPs and started concentrating heavily on the investment component. ULIPs in its core construct started being like mutual fund product, albeit with high charge structure and longer lockins. In the recent changes mentioned by IRDA, ULIPs necessarily need to have a protection level ( i.e. sum insured) of at least 10 times the annual premium if the insured is below 45 years of age, and 7 times the annual premium if the person is above 45 years of age. The other key changes relate to a 5 year lock in, level premium, minimum premium paying term of 5 years, surrender charges being capped, no surrender charges after five policy years, total charges being capped and evenly distributed across the policy years and pensions having a minimum assured return of 4.5%. Given these changes, there will be a basic degree of commodisation in ULIPs. This will result in life insurance companies paying far more attention to health insurance and term insurance as an area where they can generate incremental sales. Hitherto, these two products were a bit ignored by IRDA.

IRDA has come out with some interesting recommendations regarding the health insurance plans that Life insurance companies can offer. If the age at entry is less than 45, then the minimum annual health cover has to be 5 times the annualized premiums or Rs 100,000 whichever is higher. If the age at entry is more than 45 years, then the health cover has to be a minimum of Rs 75,000 or 5 times the annualized premium, whichever is higher. At no time during the policy can the annual health cover be less than 105% of the total premiums paid.

We heartily welcome this trend of life insurance companies concentrating on health insurance policies. It is very clear that the width and depth of distribution of life insurance companies is far higher than that of the general insurance companies. It is estimated that there are 3.5 million life insurance agents in this country. If the agency channel of life insurance companies gets excited about this product, health insurance penetration can only increase. Currently the health insurance market is estimated to be at Rs 8100 crores and expected to grow to Rs 35,000 crores in the next few years. It can do with all the help that it can receive from the life insurance companies.

Online Insurance Comparison

The internet today is the most vast source of information. Information is almost commoditised , the only important thing being that one should know what to search for. The greatest role of the internet has been in removing information asymmetry, leading to a more efficient marketplace.

And insurance is one area where the power of information through the internet can be harnessed to the maximum. One of the biggest gripes about the insurance industry has been that users have been purchasing insurance almost blindfolded, completely at the mercy of the agent who unabashedly pushes products where he earns the maximum commission. The costs of distribution in insurance are massive, and there are significant inefficiencies within the system. As with any other channel where commissions are unrealistically high, there are many layers and sub layers of distribution, the ultimate cost of which is borne by the consumer. This is where the internet can step in, getting the buyer and the insurance company much closer, and thus ultimately leading to lower purchase price.

In India, the recent trend has been that people have started using the internet extensively to compare policies before buying insurance. Insurance purchase through the internet is still in its infancy, but it is a matter of time before things catch up. With broadband penetration set to surge beyond the current levels of 10 mn connections, the use of the internet can only increase. The efficiency that the internet has brought in is primarily in terms of allowing the user to compare all features of the insurance company including price through the individual websites of the companies or through aggregator sites. In that sense, there is a tremendous responsibility on aggregator sites to provide unbiased information. Whether that is happening or not is a different matter altogether. The level of mis-selling that is there in insurance is of epic proportions. Regular premium policies have been sold as recurring bank deposits, non guaranteed products have been sold as guaranteed products, direct debit mandates have been taken from unsuspecting consumers...even if the internet can reduce the level of mis-selling a bit, it would have more than served its purpose.

The important factor to note in any price comparison of insurance policies is that the savings through lower premium is not only for a year, but this benefit is passed on every year on renewal. A health insurance policy bought at a 40% lower price than a policy of another company is likely to cost 40% less on each subsequent renewal. The power of accumulated savings is thus huge, as we can see.

At the same time, there is one disturbing trend that is being seen in aggregator sites. We are seeing that products which frankly do not merit comparisons are being compared. A case in point is pensions product, where the variable with perhaps more than 90% weightage is fund performance of the company. Yet we still find aggregator sites providing comparisons using the assumed rate of return of 6% and 10 %. A .25% lower fund management fee of one company is irrelevant if it underperforms the fund performance of another company cumulatively by even 1%.

Insurance products that lend itself the best to online insurance comparison are health insurance, car insurance and term life insurance. This is primarily because there is a direct price comparison, and there are direct feature comparisons. Additional features can be attributed a monetary value, and the user can then do an analysis whether the overall price equation makes sense. Products like child policies, pensions, or for those matter investment products are very difficult to compare on the price front, and more often than not the comparisons are meaningless.

Cashless Health Insurance Claims | What is going on??

General Insurance companies have taken the battle to the hospitals. In a move that is aimed at reducing the exorbitant level of hospital claims and cost, the four public General Insurance companies (New India, National, Oriental and United India) have decided to stop/reduce the facility of cashless health insurance claims in the top hospitals of the country. About 100 of the preferred partner network hospitals (PPN) have been struck off the list from July 1, 2010. Most of the renowned, branded private hospitals have been removed from the list of hospitals where cashless health insurance claims are entertained.

What is a cashless claim: The cashless claim feature has been primarily designed for the benefit of the insured. Under this, whenever the insured person has a hospitalization claim, s/he does not have to pay the hospital bills but the bill is directly paid by the insurer to the hospital. Thus, there is no cash outflow from the patient. In theory, this is great as it eliminates the cash outflow from the patient.

But where is the problem: the problem has been that because the bill is directly settled by the health insurance company, the financial stakes of the patient has become nil under the cashless claim and s/he has stopped being bothered about how much the hospital is charging. This has been a boon to the hospital as they can charge as much as they want from a price indifferent patient. In this entire process, the fact that for a tripartite agreement to work , there has to be a stake for all the three parties has been violated. All the risk has been passed on to the insurer.

At the same time, reducing cashless will still prove to be a huge inconvenience for the genuine insured person who has cash flow issues in paying directly upfront for the exorbitant hospital costs. In this entire process of trying to do away with the cashless facility, are we throwing the baby out with the bathwater.

One good solution could be that for any cashless facility, there has to be a mandatory co-pay option. This would lead to the consumer (i.e the patient/insured) to have a financial stake as a part of the bill would need to be paid by him, and thus he would be conscious that the hospital is not overcharging.

There is another point to note here: why is it that the claims ratio (around 115%) of the public general insurance companies is far higher than that of the private general insurance companies. The basic fact is that the public companies have far lesser controls than the private players, which opens it up for potential misuse. An overall overhaul of their management practices might be more efficient in reducing the claims ratio rather than by stopping cashless claims. The danger in the path that the public health insurance companies is taking is that their customer base could move away to the private health insurance companies.

The latest noise that one is hearing is that the public health insurance companies will be extending the cashless facility on a case to case basis, whatever that means. There is also talk of a new grading system for hospitals. There has also been news that a 10.3% service tax on the cashless claim amount has to be paid by the TPA to the hospital. In effect this would mean that around 10% of the claim cost would get transferred to the insured. In the case of reimbursement (instead of cashless facility), this claim will not be there. The final word is yet to be written on this issue.

Health Insurance Portability

We have all heard of mobile number portability (that it gets perpetually delayed is another matter altogether!). Similarly, the Insurance Regulatory and Development Authority (IRDA) is now working with an aggressive timeline for Health Insurance Portability. At a simplistic level, health insurance portability means that the insurance policyholder can transfer the health insurance policy on renewal from one insurance company to another, without losing any of the accrued benefits.

The basic idea is to enable the insurance policy holder to continue with a minimum base cover that is constant across all insurance companies. Today, if you acquired an illness during the earlier policy term, it is treated as a pre-existing one by the new insurer, and thus people (especially senior people) find it very difficult to change their health insurance company even though they might be dissatisfied.

This is a boon for policyholders. What it does is that it ensures that the insurance company with whom you are currently insured cannot afford to take you for granted (irrespective of what the customer service department would like you to believe, you are nothing but a revenue stream for the insurance company!). It also will make the health insurance company think twice before frivolously rejecting any claims. The biggest advantage is that the policyholder is not tied down to one insurance company, and has an option when his existing insurance company might not want to cover his risk any more. This will also ensure that insurance companies will introduce more cost competitive and customer friendly schemes so that there is no switch by their existing policy holders, thus leading to a reduction in premium.

Currently, most health insurance contracts are one year contracts, and if there has been no claim, bonuses in the form of higher sum assured for the same premium, or a reduction in premium, is assured. However, if the policyholder wants to move to another company, the bonuses are not transferred and the policyholder pays the base rate. For senior citizens who bought the original health insurance policy many years earlier, it becomes even more difficult to shift as the insurance companies are reluctant to sell new policies to the elderly.

Some of the major issues such as data exchange, bonus transfer and two policies being different are being worked out. According to senior officials, the basic product has already been developed by GIC and is now awaiting the approval of IRDA. Health Insurance portability will most probably be available for sum insured upto Rs 1 lakh or 2 Lakh ( we recommend 2 lakhs). Since two mediclaim policies are hardly ever identical, GIC is working towards a common minimum benefit which can be carried forward if one decides to change the insurance company.

Accumulated bonuses on claim free policy will not be carried forward and extended cover will be treated as a new policy. On the base cover, there will be no exclusions on the basis of cooling off time or pre existing diseases. While portability might take away customization of health insurance policies, it is a small price to pay for the freedom of knowing that the health insurance company cannot twist your arm when you are at your weakest.