Small IT firms to be hit under new insurance regime

Small and medium information technology companies are likely to be the worst affected in a regime where there are no controls on premium charged on general insurance risks.

The proposed lifting of controls on premium rates is expected to bring to an end the prevalent practice of cross-subsidising tariff-free group health insurance and marine risks against profitable portfolios like fire and engineering covers, premium rates for which are tariff based.

General insurers, experts said, would move to estimating premium rates based on assessment of risks on a standalone basis from a client portfolio basis.

Nearly 80 per cent of insurance spends of IT companies are employee related and the rest are for property and fire covers.

The premium outgo of small and mid-sized IT firms on group health insurance is expected to go up significantly, though they might see reductions in premium on their smaller insurance portfolios like fire and property.

In cases where the group health cover is sold at discounted rates, the claims ratio is as high as 200 per cent.

Concerns over an increase in insurance premium outgo has made these companies use the expertise of their brokers for implementing loss-control mechanisms, analysing claims experience, and designing a more cost-effective cover for employees and dependents.

IT companies are considering curtailing costs by introducing limits and sub-limits. A few firms are even planning to introduce the system of "co-payment" wherein employees also share a part of the premium burden.

This means that there would be caps on expenses allowed for certain diseases like hernia or cataract and heirarchy-linked caps on hospitalisation expenses.

A few IT companies which started operations about two-three years back had bought exotic covers under group health insurance. Now, they have drawn up plans to cut down on exotic covers, according to industry officials.

One IT company had even included the cost of new spectacles in the group health policy underwritten on an all-risk basis, which resulted in an increase in premium in the following year.

A senior industry official said: "The policy bought by the company with about 20,000 employees covered damage to spectacles of up to Rs 3,500 per employee. Since no proof was required, employees claimed the amount. The cover was offered for the last three years, but now the company is doing away with it to keep costs in check."