Ensuring cover

The rules of insurance are slowly changing, whether it is medical or fire and marine. The result is that an industry that has lived off cross-subsidies (losing money on automobile and medical insurance while raking it in on the others) must learn to play by new rules. And those who have enjoyed the subsidies so far will have to live with paying more for the same service.

Newspaper reports indicate, for instance, that the government-owned general insurance companies have issued circulars which say that no commissions will be paid to agents for policies that are sold/renewed to people above the age of 55. Reacting to this, the chairman of the Insurance Regulatory and Development Authority (IRDA) has said that if people above the age of 55 want a policy at their doorstep, they could pay the commission that the agent would have got from the insurance company "" otherwise they were always free to contact the company directly and get a policy. While it is true that insurance firms should not refuse to insure/re-insure people above a certain age (though many practise an exclusion policy beyond the age of 70 or 75), the introduction of a procedural hurdle is clearly meant to discourage the purchase of insurance by people who are at an age when they are more likely to need the insurance. Thus, if the renewal of a policy lapses by even a day, as could happen if a cheque does not get cashed in time by a reluctant insurance firm, it means that all the diseases an older person suffers from will be considered to be pre-existing at the time of the new policy, and therefore will not be covered!

That said, those buying insurance have to realise that claims do mount after a certain age, and it is not possible to service them without higher premiums""this is after all the global practice. Equally, it is sensible to introduce the co-pay principle, whereby the insured person pays for a specified percentage of a medical claim""a provision that encourages the minimisation of claims. Private players in the industry cannot afford to take the kind of hits that government-run firms can or do. More importantly, once lucrative insurance segments like fire and marine are deregulated from January, their premium rates will fall and the cross-subsidy cushion that they have provided so far will no longer be available to keep the Mediclaim premium low.

What the IRDA will have to do, taking a leaf from the telecom regulator's book, is to ensure that insurance firms file the details of their costs and revenues so as to ensure there is no cross-subsidy. A current practice, for instance, is to levy lower rates for group medical insurance since the same corporate customers also take out policies for other high-value insurance, such as fire cover. While discounts to favoured customers are common in most businesses, the problem here is that individual customers will get charged higher premiums to make good the losses on group medical insurance. If insurance firms are trying to shake off older clients, they should be made to divulge the claims-to-premiums ratio for all age groups, to assess the basis on which premiums are fixed. The telecom regulator did this job by fixing a ceiling for certain types of calls after examining the data from various players, and then went into forbearance mode once there was enough competition and market tariffs were lower than the prescribed ceilings.