Health policies to see spike in premiums if CPI+3 formula is used

Health insurance customers may soon have to loosen their purses to pay premiums, if a proposal by an expert committee on health insurance is accepted. This committee has recommended that health premiums increase per year be linked to consumer price inflation and that it is should be CPI plus 3 per cent. This would lead to additional hikes since presently health policy premiums increase only after three years.

The expert committee has said that the CPI+3 formula would be a cap and an insurer can increase up to this limit. It said that any higher increase would require the Authority's approval.

Consumer Price Index (CPI)-based inflation for April stood at 4.86 per cent, the lowest in four months, on the back of another month of declining food prices, data by the Central Statistics Office showed. Consumer Food Price Inflation (CFPI) for April was 5.11 per cent, against 6.14 per cent in March and 9.21 per cent in the year-ago period.

"The health inflation at present is almost 16-18 per cent annually. The idea is to have it included into the pricing of the health product, though it may pinch customer pockets," said a senior private general insurance executive who was part of the committee.

This committee constituted to examine health insurance framework in India has said that there should be pilot products for insurance with a five-year period. This may also follow a similar pricing mechanism of CPI+3. As per the report submitted to the Insurance Regulatory and Development Authority of India (IRDAI), the committee recommended that insurers may have a category of close ended products (termed pilot products) running for a period of 5 years from the date of launch of the product.

Presently, once a health product is launched by a general insurance company, the pricing cannot be tweaked for the next three years. Only after three years the pricing is tweaked based on inflation and claims experience.

"The current norms do not give flexibility to the insurers to price products as per the corresponding rise in costs of medicines and hospital charges. If CPI is used as a benchmark, pricing would be more effective. Heavy losses in health portfolio will also come down," said the chief executive of a standalone health insurer.

IRDAI had constituted a 11 member committee in December 2014 with members from private sector and public sector life and general insurers, apart from members from the regulatory body and General Insurance Council to look into products, distribution, financial matters, M&A and policyholders' interests in health insurance space.

However, for young customers, the price-increase would not be as sharp as for older customers. According to the committee, use of premium discount structures as a risk management tool to incentivise customers through wellness and preventive care mechanisms to actively manage health may be permitted. This, it said, is specifically recommended because not only does it lead to people being healthy but also reduces the claim cost in the long run for health insurers.

Business Standard
Sent from BlackBerry® on Airtel