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Is Detariffing of motor and fire beneficial for health insurance?

The year 2007 ushered in detariffing for motor and fire insurance. Detariffing implies that the pricing of policies are left to the individual insurance companies to decide based on scientific analysis of historical data and perceptions of risk. The change has engendered a debate about the impact of the newly detariffed sector on the already detariffed sectors - health insurance. We ask the experts…

'Detariffing will free health insurance from the web of cross-subsidisation'

Health insurance in India has two main divisions: individual and group. As motor and fire insurance undergo changes, it is expected that the impact on individual health insurance will be negligible. Policies will continue to be determined by the individual risk profiles, but the growing awareness of the field will give it a different emphasis. Periodic health checkups and suggestions for improvement will align with lower premiums for 'good' risk. In other words, the incentive to actively impact their risk factors will have a positive impact on custumer behaviour.

Group healthcare is a different story. Despite detariffing it long ago, thus having the freedom to determine both the coverage and prices, group healthcare by itself has been a loss-making portfolio. The general perception that its potential is overshadowed by the lack of profit has rendered insurers soft on this sector. Unlike most countries in the west (and in fact even individual health insurance in India), the group division is still not determined on the governing factors (read: the health indicators), but rather treated as a freebie that comes along with other insurance policies.

If we look at fire insurance — one of the profitable sectors — it is easy to understand why most insurance companies have subsidised their group health premiums in order to secure business. So, for several years, group health insurance has been caught in the web of cross-subsidisation. Lured by the profitability of insuring companies against fire — as there are fewer numbers of claims — group health insurance has become an attractive 'add-on'.

This trend will change. Prima facie, the knee-jerk reaction will likely be one of resistance as group health premiums rise. But, in my view, this is the path to a more organised and specialised sector. In any case, these price increases will be accompanied by price reductions of fire policies on good risks, thereby offsetting each other.

Prices aside, this jump signals a major step forward for the health insurance sector. Cross-subsidisation will become difficult, enabling health insurers to leverage their expertise and better serve their function.

Ajit Narain

"Periodic health checkups and suggestions for improvement will align with lower premiums for 'good' risk" - Ajit Narain, MD & CEO IFFCO TOKIO General Insurance Co. Ltd, New Delhi	"Hospitals who will pro-actively help insurance companies manage better claim ratios will become the preferred providers" - Deepak Mendiratta, Managing Director, Health & Insurance Integrated, New Delhi	"Retail health insurance is a loss-making portfolio and after detariffing companies had to cut down their losses" - Dr Biswendu Bardhan Branch Manager, Family Health Plan Limited, Ahmedabad

'Products focused on preventive health & OPD benefits will hit the market'

The tariff regime did not allow insurance companies to offer any discounts on the rates prescribed by the government. Therefore, they offered unprecedented discounts on tariff products like group health insurance covers. As a result of collecting low premiums on group health insurance, this portfolio would always show losses when analysed on a standalone basis.

Now, competition is expected to whittle down the fat margins that insurers enjoy in fire and engineering insurance and eliminate cross-subsidies for health insurance. In detariffing, the rating will be based on the risk profile of the customer and it will be in the customers' interest to make his risk profile better. A risk will be judged on its own merits and detariffing will force insurers to scale up their risk-assessment capability.

Now insurers are going to focus on making health insurance a profitable portfolio for themselves. This will impact two areas. One to whom and at what terms should the health insurance be offered, and, two, how to minimise claims arising at the hospital level. While insurance companies will more prudent when it comes to providing health insurance covers to individuals and companies, hospitals should brace themselves for stringent claim control measures. These will include price banding procedures and treatment costs and obtaining greater discounts from hospitals. Increased discounts from hospitals may come from reducing the network provider list of insurers/TPAs and channelising greater volume to select providers against a promise of higher discounts. This will also mean that newer models will come into vogue like claims re-pricing, etc. Hospitals who will pro-actively help insurance companies manage better claim ratios will become the preferred providers. Also new products will come into the market which will focus on keeping the insured healthy with emphasis on preventive health and OPD benefits.

Deepak Mendiratta

'Companies will have to focus more on overall cost management'

Post detariffing, group health insurance will no longer be subject to cross-subsidisation and will find its own price level based on standard underwritten norms. It means corporates will pay higher premiums than individuals.

As far as retail health insurance is concerned, earlier insurance companies had the flexibility to define the coverage and premiums according to the performance of the portfolio. Retail health insurance is a loss-making portfolio and after detariffing companies had to cut down their losses. In view of this fact, private and public insurance companies are unveiling newer policies with more capping and restrictions based on the total of the sum insured. Moreover, there are chances of differential loading in the premium at the time of renewal of policies by the insured based on their previous year claims. There are also possibilities of canceling some policies for erratic claims. There could be a trend to provide policies with higher sum insured to increase the premium based income. TPAs/ agents will have to play a major role in controlling the claims ratio. Everyone would be in search of a magical stick to control claims.

Companies will have to focus more on overall cost management with emphasis on prudent underwriting, operational and distribution efficiencies, leveraging economies of scale, excellent service, building brand image, underwriting innovative products/policies and cost-optimisation, to survive in a cut-throat competition and lessen price sensitivity. There is also a need for a collaborative partnership between insurers, TPAs, healthcare service providers, agents and brokers, the Government and community-based organisations and the IRDA for the growth of the sector.

Dr Biswendu Bardhan