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“Equality for all” phrase may not always hold true in all situations. Take, for instance, the recent 25% rise in premiums of health insurance that has lately become the cause of concern for only young policyholders. The new health insurance regulations, implemented by the Indian regulator in October last year, have certainly earned the wrath of majority of young policyholders as they will be the ones paying more premium.
If the sources (insurers) are to be believed, removing claim-based loading (consequently raising premiums for those who file for claims) and bringing in lifelong renew-ability are the reasons that have led to the sudden increase in premiums this year. According to IRDA, companies have been asked to raise rates only once every three years. The recently announced changes have led all the state owned companies; New India Assurance, National Insurance, United India and Oriental Insurance — to consider revising the premiums for the first time ever since 2008.
Various significant factors like the claim experience, zone, demography and the impact of new technology have been considered to change the premium to 20%. The revised rates are going to remain valid for three years. This mandates the insurers to calculate rate of inflation for over three years taking in to account healthcare costs that are rising at 12-16% annually.
Factor of inflation has to be taken into account when going for a three-yearly health insurance hike, as stated by TA Ramalingam, head, health insurance, Bajaj Allianz General Insurance. Also, the recent health insurance guidelines ask insurance companies to increase premiums only when policyholder moves to a new age band. Dropping claim based loading and including lifelong renew ability will obviously make younger people pay more.
According to Ramalingam, it is cross-subsidization that is making younger people pay more; else senior citizens can't be expected to comfortably afford health insurance. People in the age group of 60 and above claim their insurance the most but companies cannot charge raised premiums from such age group beyond a certain point. Even then, claim ratio — claims settled as a proportion of premiums collected — will drop to 90% from 95-100%, as per insurers’ estimates.
Companies, even now, consider the business in loss as combined ratio of expenses and other overheads will be more than 105%.
Group Mediclaim policies are no exception either as they too can be expected to have raised premiums this year, say 10-15%. The portfolio, despite doubled up policy premiums, has not experienced any drop in demand for insurers. Prior to detariffing or elimination of pricing rules, insurance companies favored corporate group health policies as these were lucrative for them.
But in the post-de-tariff regime, each of the classes would be analyzed on their own merits; and if we are to go by constantly changing trends of cross-subsidization, the latter would anyways weaken the process of scientific underwriting and result in operating losses. So, efficient pricing will have to be done for both parties' (insurers and insured) mutual gain.