Health cover should be seen as a provision, not insurance
07 04 08 - 21:45
Yogesh S. Dave/ DNA MONEY
Monday, 07 April , 2008, 11:53
Promise of providing satisfactory health insurance can help one become president of America, as Bill Clinton, whose election manifesto included providing excellent health coverage benefits, found out.
"Health insurance is a lucrative business," a senior insurance company official had said sometime back. But public sector insurers do not think so. They are reporting adverse claim ratio i.e. for every Rs 100 premium collected, they pay more than Rs 100 by the way of claim.
All insurance business is based on "the law of average." However, the law is working against mediclaim business. Insurance can be against some uncertain event.
As illness is a certain event at some point of time in every person's life, probability of every insured making a claim under mediclaim policy is very high. Hence issuing mediclaim policy as a pure indemnity product would be disastrous. Under pure indemnity policies, sum-insured (SI) is reinstated every year making it vulnerable to losses.
Insurers will never see profits in the long-run and policyholders will never get satisfactory services.
Can anybody offer insurance for retirement benefits? The answer is a big no. It has to be provided by the individual himself. Similarly, health coverage should be seen as a provision and not as insurance. Rather health cover should be assured.
Hence a valued policy with provision for making partial claims needs to be introduced. In a valued policy, no deductions are made during claim settlement.
At present, many items are deducted by the insurers as "not payable". Ideally, a mediclaim policy should be limited payment whole life policy.
Sum-insured should be single limit for the entire term of the policy. Partial claim under the policy would reduce the available limit.
Premium should remain constant throughout the term of the policy. A break in the continuity of the policy is a nightmare for policyholders. Imagine an inadvertent break after paying premiums for 25 years.
Hence 30 days of grace should be allowed for premium payment. At present, a person who buys mediclaim at age of 25 has no advantage (except bonus in SI) over the person who enters at age 60. Hence it is essential to categorise the age group that buys mediclaim policy. Funds of one group should not be used to pay claims of the other group.
This will safeguard early starters from the latecomers entering the coverage that too sometimes without disclosing pre-existing diseases.
Mediclaim providers need to learn a lot from Life Insurance Corporation (LIC). Age at entry for high-risk life plans is restricted at 50 years of age by LIC.
If at all a claim is made in a life policy, it would be only once. A mediclaim policyholder may make several claims in his lifetime, making it unviable for insurers.
Hence age at entry as well as age for increase in SI under mediclaim policy needs to be restricted.
Recently, the Insurance Regulatory Development Authority has capped increase in premium to 75%. It can also be interpreted as insurers are allowed to increase premiums by 75 %.
In the free pricing age, the good risks (healthy policyholders) may transfer their policy to the players who would offer competitive rates.
Be rest assured, competitive rates would be temporary only.
As a result PSUs are at a very high risk of remaining with only bad risks i.e. the policyholders who are either old or have made claims and would not be welcomed by other insurer.
Hence even every year increase of premium by 75% may not be sufficient to meet the growing claims.
After the present increase in premium by one of the PSU, if amount identical to annual premium of Rs 1 lakh SI is invested at 8% CAGR by a person aged 25 years up to his age 80 yrs; the savings would grow to Rs 18.50 lakh.
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It seems policyholders can now expect never before experienced services. However due to present features of the policy, insurers are at notional risk of Rs 56 lakh for the same policyholder. Mediclaim prices needs to be regulated and based on the true data of claims experience. The action taken now by IRDA would prove them to be prudent or redundant in the very near future.
Another important point that policyholders should understand is that policy covering only critical illness is a luxury and basic mediclaim policy is a necessity.