A Hike In Health Insurance Premiums Fails To Deter Demand
A health worker handles a swab sample at a Covid-19 testing site in the courtyard of a school in Newl Delhi, India. (Photographer: T. Narayan/Bloomberg)

A Hike In Health Insurance Premiums Fails To Deter Demand

Premiums of health and general insurance have risen in the last two months after the sector regulator introduced standardisation norms, directing companies to either add features to their products or make them uniform.

The Insurance Regulatory and Development Authority of India permitted an increase of up to 5% in premiums. Beyond that, the regulator had the discretion to allow hikes on a case-to-case basis. Standardised clauses are applicable on new policies filed by insurers on or after October 2020, and from April 2021 for existing products that are due for renewal.

Under the standardisation norms—aimed at specific inclusions, exclusions and helping customers select policies appropriately—ailments like mental illness, stress or psychological disorders have been included under health treatment. Modern treatment methods such as oral chemotherapy have also been included.

The online insurance aggregator Policybazaar said as many as 43% of its customers have seen premiums rise by nearly 5%, while 15% witnessed price hikes ranging between 5% and 15%. For 4% of its consumers, the price rise has been more than 50%. “Majority of the customers have seen prices rise on the back of standardisation norms,” Amit Chhabra, health business head at Policybazaar, said.

ICICI Lombard General Insurance Co. said it increased its premiums by up to 5% following the standardisation, while Star Health Insurance said it hasn’t gone in for hikes yet as it evaluates options.

Other Reasons

Standardisation alone hasn’t resulted in increased prices of policies.

“We’re normally allowed a price change every year based on the portfolio performance,” Sanjay Datta, chief, underwriting, claims and reinsurance, ICICI Lombard, said. “The insurer might go to the regulator for increasing prices after evaluating the book performance.”

According to Anand Roy, managing director of Star Health Insurance, health insurers are allowed to hike premiums once claim settlements reach a threshold. “There are also some companies that have benefitted from the demand Covid-19 has created and increased their prices.”

Chhabra of Policybazaar said price hikes might happen every three to five years when existing policies either get replaced by newer ones or are filed again with the regulator. “This year has been such a year for insurers which is also one of the reasons for the price increase.”

The company said while demand due to Covid-19 hasn’t led to a jump in prices of health policies yet, it’s too early to comment on what might happen in the future.

Growth Trends

Rising prices and demand has helped health insurance garner higher market share at the cost of motor insurance, the dominant segment.

The share of health insurance among total policies rose 300 basis points year-on-year to 29% during April-October, according to data from IRDAI. The share of motor insurance fell by about 400 basis points to 31% during the same period.

Growth in the gross direct premium of health insurance stood at 15% year-on-year between April and October 2020—in comparison with motor insurance’s 10% decline during the same period, according to IRDAI data.

What’s Next

ICICI Lombard, Policybazaar and Star Health said while fear and increased awareness may have led to rising demand for health insurance policies so far this year, the changed mindset of needing to safeguard families from financial liability will drive demand in the future.

“Increased awareness is leading to a secular growth in the health insurance penetration,” Datta of ICICI Lombard said. “The attitude has changed; earlier people used to view going for insurance policies as important which has now become more like an urgent need and so the momentum might continue over next three to five years.”

Chhabra of Policybazaar and Roy of Star Health say the shift caused by Covid-19 to stay. “We’re very confident that even after the pandemic subsides, awareness will remain and penetration of health insurance will increase,” Roy said.

Health insurance has always witnessed growth three to five years after the outbreak of any pandemic or epidemic in the past, he said. “While this kind of hyper-growth that’s seen in the market especially in the retail products driven by Covid-19-specific plans might not continue for a long time, health will continue to grow at a much faster pace than pre-pandemic.”

Adding that the company’s main focus will be on retail business, which is growing at more than 20-30%, Roy said: “We believe that retail growth will sustain at 20%+ for the next three years.”

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