Retail health insurance policies to get dearer

Premium rates on retail health insurance policies could rise this year, owing to the combined impact of high claims and the secondary impact of price control of motor and fire insurance coming to an end in January 2007.

From January 2007, the ceiling tariffs for motor and fire insurance will no longer be fixed by the insurance regulator. They will be market determined.

State-owned Oriental Insurance has already sought the insurance regulator's approval to introduce a retail health insurance package where the premium rates for older policy holders would increase by up to 15 per cent.

M Ramadoss, chairman-cum-managing director of Oriental, said. Oriental's move has come after its claims ratio worsened in the last couple of years. The net claims ratio in 2005-06 was 118.23 per cent, as compared to 77.29 per cent three years ago.

High claims ratio in the health portfolio is not limited to Oriental Insurance and most general insurers deal with the same problem. The main reason for the high claims scenario is adverse selection (late age of insured and potential of higher morbidity rates), an executive of a state-owned insurer said.

The root cause of the problem is that regulations force insurers to sell health insurance as a product, and not a service, he added. Consequently, the pricing structure is impacted by the one-size-fits-all approach.

The health portfolio accounts for about 10 per cent of the business underwritten by state-owned insurers, according the industry regulator IRDA.

The annual premium collected on the entire industry's health insurance portfolio is about Rs 2,000 crore, of which about two thirds is contributed by group health insurance, is the guesstimate of Karan Chopra, national product manager of ICICI Lombard.

The premiums on health portfolio is also likely to be affected by the de-tarrifing of fire and motor insurance in January 2007. Premiums in the entire health portfolio are likely to increase because of the secondary effect of de-tarrifing, a stakeholder in health insurance said.

Group health insurance premiums sometimes don't reflect the underwriting risks because companies bundle them with a tariff controlled product such as fire insurance during their actual marketing.

The ground reality in marketing makes companies look at the total premium they can collect, and use one product to cross-subsidise another to market a package.

Once the tariffs are removed, market conditions will change and health insurance packages-both retail and group insurance-may better reflect the underwriting risks.

Despite the portents that point to a firm trend in premium rates on retail health insurance package, the need to build a large enough pool of customers may act check the likelihood of a premium rate hike by some insurers.

ICICI Lombard, the largest private insurer, plans to concentrate on expanding the pool of retail health insurance clients. Our emphasis now is on expanding our distribution to reach out to a wider audience Karan Chopra said.