Despite IRDAI’s clarification, policyholders will continue to face difficulties as insurance companies have increased health cover premiums citing high claims
Ever since the insurance regulator’s mandatory rules on standardization of health insurance exclusions came into effect from October 1, 2020, many policyholders have complained that their premiums have increased drastically.
However, the Insurance Regulatory and Development Authority of India (IRDAI) has clarified that the change in premium due to the change in norms is not more than 5 per cent.
IRDAI said, “Insurers were permitted to change the base premium by up to 5% of the original approved premium rates to comply with the guidelines on standardisation of exclusions.
This has been permitted as a one-time measure to facilitate smooth transition of existing products and to enable companies to keep their business viable and remain in the market.”
The regulator said that out of a total of 388 products, only 55 saw premiums increase by up to 5 per cent as of September 30, 2020.
Apart from this, five health insurance products have seen a premium increase of more than 5 per cent.
According to IRDAI, the reason for this increase is the incurred claims ratio. The incurred claims ratio is the ratio of the total claims paid to the premiums collected during the entire year.
If this ratio is high then the business becomes unprofitable and hence the insurance companies have to increase the premium rates.
According to data from Policybazaar.com, about 10 percent of the company’s total customers who renewed their policies said that their premiums have increased by more than 30 percent. Premiums of about 8 percent policyholders have increased by 15-30 percent.
Amit Chhabra, Business Head (Health), Policybazaar.com says, “Premiums increase with age. Policies usually have age slabs of 5 years. For example, as long as you are in the age bracket of 30-35 years, there is no change in your premium.
As soon as you cross the age of 35, you move to the next age slab and your premiums move to the pre-determined premium grid. This is one of the most common reasons for the increase in premium in most cases.”
Apart from this, new norms and adverse claim ratios, increase in healthcare costs due to COVID-19 and regular inflation in medicines and treatments also play a major role in the increase in overall health premiums.
Harshvardhan Rungta, financial planner at Rungta Securities, says, “Medical inflation is rising and there is no regulatory control on hospital prices. Insurance companies are trying to fix package rates, but that has not helped either. When rates are fixed in this way, hospitals force patients to pay the outstanding amount.”
Old customers, new products
In some cases, there may be another reason for the steep hike in rates. If you replace your previous cover with a new policy, the premium increases.
Policyholders are not given the option to continue with the existing policy in such cases. Moneycontrol has previously raised this issue as a major cause of concern among policyholders.
Mahaveer Chopra, Founder, Besha.org says, “Some insurance companies have discontinued their existing products and have given their policyholders the option of migration. This is not covered in IRDAI’s clarification.”
These new products may be better than the old ones and may include new features. But for policyholders, this could simply mean higher premiums and this does not take into account whether the customer likes the new benefits or not.
Take, for example, 47-year-old Ram Manohara Reddy. Reddy has been holding a policy with a private general insurance company for the past 17 years.
This is a family floater policy in which his 74-year-old father and 65-year-old mother are also covered.
In December 2019, the company terminated their policy citing unavailability as the reason. The company also shifted the family to a new product.
With this, Reddy’s premium increased from Rs 21,762 to Rs 66,667. This increase was more than 200 percent. The insurance company justified this increase by telling him that the new policy offers more benefits like freedom from room rent restrictions. Along with this, wellness benefits and cover reload are also available in it.
Reddy says, “The thing that hurt me the most was that they did not give us any benefits as a loyal customer who has been associated with their company for the last 16 years. No consideration has been given to this thing, I have been associated with the company for so long.”
He lodged his protest but at the same time, he continued with the policy. After October 2020, when IRDAI’s standardization guidelines for existing policies came, he received another advance notice informing him about another increase in the premium. He was told that he would have to pay this increased premium on the date of renewal of his policy.
An angry Reddy says, “This time they have increased the premium by 64% to Rs 1.09 lakh. The company has cited the steep rise in medical treatment costs as the reason behind this steep hike in premium.”
Policyholders have limited options
The increase in premiums comes as a big shock to the policyholders, especially those who have been paying their premiums for a long time.
This is also because shifting to another product while keeping the waiting period credit for pre-existing ailments is not easy at this age.
Since senior citizens are suffering from many diseases at this age, other insurance companies do not give importance to adding them at reasonable premiums.
Chopra says, “These changes should happen at the ecosystem level. Senior citizens have limited options. In such a situation, creating a sufficient health fund can be an option.
Through this, if you have enough money and you can bear the cost of your treatment on your own in the long run, then you can think of ending your policy. However, you have to keep in mind that it will be difficult for you to estimate how much the cost of different types of treatment will increase.”
In such a situation, it is not easy to estimate how much money you should create a healthcare fund for yourself.
“Also, you must remember that your health insurance sum insured gets reset every year, even if you have made a claim. This is not the case with the fund you have built up. Once you have spent money on treatment, you will have to save separately to make up for the shortfall in the fund,” says Roongta.
However, the fund you have created can be very useful in compensating for any kind of deductions. Deductions are deductions that the insurance company does not pay while paying your hospitalization bill.
You have to pay this money. This fund proves useful for you even if you are in old age and you do not have any kind of insurance cover.
Policybazaar’s Chhabra recommends that if your premium exceeds 10 per cent of your sum insured, you should consider the option of porting to other insurance companies or products.
He says, “If you feel that the increase in premium is unnecessary, you can consider porting options. You can consider other affordable policies available in the market, including policies for senior citizens.
However, note that these may have several restrictions, including up to 30 per cent co-payment and other limits. So it is a mixed game. Policies may be affordable, but you should also look at the restrictions that may take your expenses out of budget.”
You can consider such plans depending on your needs, budget and what is being offered. Build your own healthcare fund as a backup so that in case of low sum insured or co-pay and room rent limits, you can pay out of your pocket.