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Public sector general insurers --- New India Assurance, Oriental Insurance, United India Insurance and National Insurance ---- are getting aggressive on the group health insurance business by quoting premiums 10 to 15% below their claims ratio.
A leading software firm has got a cut of 12% and shifted from a leading private sector insurer to a combination of two public sector companies. A foreign bank has moved from a standalone health insurer to a public sector firm for a discount of more than 10%.
Interestingly, another large IT firm, which had produced claims of Rs 60 crore under the group health policy, has decided to stick around with its public sector general insurer. The new premium: Just Rs 52 crore. In ideal circumstance, the premium should have been around Rs 65 crore or more because of the claims.
The public sector general insurers are aware of the cost they are paying for this. In the above case, the insurer took a hit on premiums. Add to that another 6-7% the insurers need to forgo as broker commission and third-party administrator (TPA) fee. So, if an insurer quotes a premium of Rs 1 crore after 10-15% discount to the corporate, they will only get Rs 93-94 lakh.
“Clients always come at a price. And this time public sector general insurers are mostly targeting private insurers' clients with huge cuts. But, there is a good chance that these clients will be quoted much higher price for renewal next year. Reason: To cut losses taken this year and due to higher claims on account of medical inflation,” says a corporate insurance broker.
At present, public sector insurers together have 60-65% of the market share on the group insurance side. Private companies have also been tapping corporates and the difference in premium collection between private and public sector insurers has been reducing over the past few years. This has made public sector companies aggressive. Also, a recent Finance Ministry directive forbade public sector companies from bidding for each others business.
In a bid to retain corporate accounts, certain private sector insurers are also indulging in this practice. "There is not just transfer of accounts from private to public general insurers who are offering astronomical discounts, but also from one private non-life insurer to the other. It is a situation where we are trying to kill each other," he said.
Industry experts believe that it is not sensible to offer discounts to large profitable firms, since they are capable of purchasing insurance without a subsidy. "Insurance is based on a common pool concept. If large players are being offered high subsidy, then others in the pool (retail customers) will have to compensate for it. So, in the long run, prices for individuals health policies will go up," warned an insurance executive.
To contain the underwriting losses of the four public sector general insurance companies, the Department of Financial Services (DFS) under the Ministry of Finance had issued certain measures in 2012-13, specifically pertaining to underwriting of health and motor insurance policies. However, these were reversed after the insurers said that this had caused customers to shift to private general insurers.
While in September last year, DFS had put restrictions on acquisition costs in individual health segment, it later said that public sector general insurers can themselves determine acquisition costs for each age group provided that the combined ratio does not exceed 100% and management expenses are well within the limits of the Insurance Act.
However, public general insurers have a different view. The general manager of a large public general insurance firm said that it was the service quality that attracted corporate customers. "Discounts are not the only means of winning large corporate accounts. It requires high standards of service and claims processing trackrecord that have motivated large firms in IT and other sectors to be associated with us. We are not trying to poach customers; at the end, it is the respective corporate who takes a decision," he maintained.
With the heavy discounts being offered to corporates, smaller insurers are chasing the retail segment. "We cannot match the rates offered by the large general insurers. Therefore, our only alternative is to build the retail segment where we can price appropriately," said a senior executive of a standalone health insurance firm.
