Health insurers may be allowed to tweak your policy at renewal: Premium could increase

Soon, general and health insurers could make changes in premiums and payment modes, expand the list of riders and day care procedures and more of their policies through a less cumbersome process. An Insurance Regulatory and Development Authority of India (Irdai) proposal seeks to allow ‘minor’ changes on a certification basis, making it easier for insurers to tweak their approved products.

Changes on the go
The insurance regulator has listed a number of changes that can be made. They include addition or deletion of premium payment modes, change in base premium rates up to 15% of originally approved rates and addition of riders, among others.


Insurers say this will allow them the flexibility to improve products. They can modify products based on customer feedback. “Modifications such as expansion of the list of day care procedures will be a boon for policyholders,” says Nikhil Apte, Chief Product Officer, Product Factory, (Health Insurance), Royal Sundaram General Insurance. At present, for each such amendment, the insurer has to file and seek approval through the time consuming ‘file and use’ procedure.

The proposal will also allow insurers to offer more payment mode options like monthly, quarterly etc. “Upfront payment of annual premium has been a deterrent of sorts in availing health insurance. This will help in making health insurance more affordable,” says Bhabatosh Mishra, COO, Apollo Munich Health Insurance. Though the draft also permits deletion of premium paying modes, it is unlikely that insurers will do so. Any deletion is unlikely as making premium payment less affordable is not in the interest of insurers.

Other modifications that could be permitted include change in minimum and maximum sums insured and premiums as well as age at entry. “Extension of premium table to provide premium rates for lower and/or higher ages or longer and/or shorter policy terms or premium payment terms (will be permitted),” the draft note adds.

If the proposal goes through, the changes will come into effect once the insurer’s appointed actuary and chief compliance officer certify that they comply with the product regulations in place. For policyholders, the changes will kick in at renewal.

Concerns over premium changes
Proposal
1. Change in premium rates– increase or decrease– up to 15%.
2. Minor changes in policy wordings.
3. Change in premium payment modes.
4. Expansion in list of day care procedures.
5. Addition of critical illnesses in benefit-based policies.

Implications
1. More frequent premium hikes likely.
2. Could be vulnerable to misuse, unless these ‘minor changes’ are more clearly defined.
3. Most insurers are likely to add, rather than axe monthly/quarterly payment modes, and hence this is a plus.
4. Will expedite addition of latest procedures, reducing the need for hospitalisation.
5. More critical ailments being covered is a positive.

The flipside
However, the move has not gone down well with some consumer activists, who feel insurance companies could use the provisions to undermine policyholder’s interest. A key concern is the provision to allow minor corrections—up to 15% increase or decrease—in premiums. “Firstly, ‘minor’ or ‘major’ are relative terms. What could be minor for the industry could be major for the consumer. Changes, particularly in terms of premium rates are unlikely to be in the interests of customers,” says consumer activist Jehangir Gai. Any increase is a distinct possibility considering age-linked structure and healthcare inflation. This could mean that policyholders will have to brace for relatively more frequent premium hikes, even if capped. On the other hand, insurers argue that any premium change will not adversely affect policyholders.

“The regulator has ensured that the premium correction is not abnormal or abrupt by capping it to a maximum of 15% only. Small and timely correction in premium prevents sudden steep rise and is in consumers’ interests,” insists Mishra. The draft states that any increase will be allowed only if the company has continuously recorded adverse loss ratio (ratio of claims paid to premiums collected) for the product in the preceding three financial years. Any such increase can be effected only after three years from the product’s launch or modification. “If an insurer files products with expected loss ratio of 60% and the actual loss ratio of the product crosses 90%, it can do a price correction of 15%, which will be a quick fix to ensure that portfolio does not become unviable,” explains Apte. No price increase for a longer period could result in deterioration of loss ratios and finally lead to steep increases in premiums later, inconveniencing policyholders further. “There should be a formal method of intimation to policyholders about the any changes done. If they are informed well in advance, there should not be any concern,” he argues.

However, any proposal that makes it easier for insurers to implement changes, especially premium hikes, is bound to raise legitimate concerns. Those who are uncomfortable with the exposure draft can write in to the Irdai, which has sought comments from all stakeholders, before 11 April to raise objections and address concerns, if any.