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Sunday 19 October 2014

Group insurance costs set to rise


Group health insurance will become more expensive for companies where hospitalization claims from employees exceed the premium paid. The insurance regulator has said that it will penalize insurance companies that accept group health covers at a loss as these losses are ultimately subsidized by individual health insurance buyers. The regulator has also asked insurance companies to come up with savings-linked health insurance plan so that individual buyers do not see a spike in rates as they age.

At present, large companies with loss-making group health covers continue to escape rate hikes by shopping for new insurers. The chase to build up top-line growth has resulted in health insurers willing to accept business even if there is little likelihood of generating a profit. According to the Insurance Regulatory and Development Authority (IRDA), insurance companies cite these high losses to raise rates for individual policies where the buyer does not have the bargaining power.

"We have seen cases where insurers are quoting rates below their burning cost. Since insurance business is nothing but pooling of resources, it is clear that if group premiums are inadequate, they are being subsidized by someone else," said IRDA chairman T S Vijayan in his address at a health insurance summit organized by the National Insurance Academy in Mumbai. Burning cost is a measure used to calculate the extent of premium required to cover claim payments. In health insurance, trends in claims under a group policy usually do not vary year to year and pricing is, therefore, based on burning costs.

"We are going to increase solvency margins for companies that accept group health insurance at rates below their burning costs," said Vijayan. "If the group health premium is below the burning costs, we want you to inform your board about this. This will bring discipline into the underwriting process," he added.


Speaking of the need for affordable cover at old age, Vijayan said, "It is essential that there is some kind of a savings-linked health insurance plan. Rather than the premium going up by leaps and bounds with age, a portion of the premium could go towards savings used in old age," he said. Unlike term life insurance where the premium is 'levelled' over the tenure of the policy, in health the contracts are priced annually and rates go up with age.

Reacting to questions on the Central Bureau of Investigation questioning the extent of penalty slapped on Reliance General Insurance for violations in sales of health policies, Vijayan said that IRDA's penalty was in keeping with regulation. "The maximum penalty that can be imposed by IRDA under Law is Rs 5 lakh per offence. We reconstructed the file and found that the company had been penalized for four offences," he said.

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