Health insurance burdens young policyholders as premiums surge 25%
20 Feb, 2014 12:12 PM
A more equitable health insurance market is leading to a heavier burden on younger policyholders, a truism that seems to apply as much to India as it does to the new regime that the US is seeking to usher in under Obamacare. The new health insurance regulations implemented by the Indian regulator in October last year were aimed at making sure that payers got the treatment that they needed but companies say consumers, particularly the young, are having to pay more as premiums have shot up as much as 25%.

The abolition of claim-based loading and the introduction of a lifelong renewability clause are the main reasons why premiums have risen sharply year, according to insurers. The first refers to the practice of increasing subsequent premiums for those who make claims. Besides this, the regulator Insurance Regulatory and Development Authority (Irda) has asked companies to raise rates only once every three years.

These changes have prompted all three state-owned companies —New India Assurance, National Insurance, United India and Oriental Insurance — to seek an increase in premiums for the first time since 2008. "We have got the approval to increase premium after six years," said Segar Sampathkumar, general manager, New India Assurance.

"We have raised premium on an average by 20% by taking into account various things like the claim experience, zone, demography and the impact of new technology. These revised rates will hold good for three years." This means the insurers have to estimate rate inflation over the three years based on, for instance, healthcare costs rising 12-16% annually.

"We have to factor in inflation for three years while filing for an increase in health insurance, which is difficult to predict," said TA Ramalingam, head, health insurance, Bajaj Allianz General Insurance. "In the earlier guidelines, we could raise rates every year." Apart from this, the new health insurance guidelines also allow insurance companies to raise premiums only when a policyholder moves to a new age band. Moving away from claimbased loading and mandating lifelong renewability naturally means that younger people will be paying more.

"There is some cross-subsidisation where younger people pay more, otherwise it will become impossible for senior citizens to afford health insurance," said Ramalingam. "Most claims come in the age group above 60 years but companies cannot load premium beyond a point for this age group." Still, this means that the claim ratio — claims settled as a proportion of premiums collected — will fall below 90% from 95-100%, according to insurers.

Companies, however, say that the business will still remain a lossmaking one for them because the combined ratio, which includes expenses and other overheads, will be more than 105%.

On the other hand, premiums on group Mediclaim policies, stable last year, are expected to rise 10-15% this year. This portfolio has been bleeding for insurers despite premiums having been doubled over the last four years. Before de-tariffing in 2007, or the removal of pricing rules, insurance companies pushed corporate group health policies as these were seen as a profitable area.

But now that will change, as the regulator's chairman, TS Vijayan, pointed out in Irda's latest journal. "In the post-detariffed regime, each of the classes would have to be considered on their own merits; and it is a wellknown fact that continued trends of cross-subsidization would tend to weaken the process of scientific underwriting as also lead to operating losses," he wrote. This means that every line of business will have to be priced adequately for both the insurers and the insured to benefit.
Source : The Economic Times

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