IRDA NEWS:IRDA asks health insurers for indicative premiums for five years on new products

The Insurance Regulatory and Development Authority (IRDA) has asked health insurance companies to indicate premium to be paid by the policyholder in the first five yearswhile filing new products for its approval.

The Insurance Regulatory and Development Authority (IRDA) has asked health insurance companies to indicate premium to be paid by the policyholder in the first five yearswhile filing new products for its approval. However, the companies are free to increase the renewal premium based on medical inflation, cost of healthcare and its underwriting practice, say insurance industry sources.

“The health insurer can increase the premium every year at the time of renewal, but these hikes cannot exceed the amount mentioned in the premium chart,” said JF Jawadwala, executive director, Nandi Insurance Broking and Risk Management Services. “There is no formal, written communication from the IRDA regarding raising renewal premiums. However, the regulator is advising companies to furnish a five-year renewal premium chart while filing new products, which spells out the quantum of premium hikes policyholders will see during the period.” “Even for the older products, the IRDA expects the insurers to hold the premiums for at least two to three years. Whenever the insurer wants to increase the premium of the product the company has to approach the IRDA and given a written explanation for the increase in premium of a particular group/product,” added Antony Jacob, chief executive officer, Apollo Munich Health Insurance.

IRDA chief J Hari Narayan had publicly criticised insurance companies in the past for their practice of “loading” of premium on the basis of previous claims made by the policyholder. Except on some newer products, health insurers typically increase the premiums (called loading in insurance parlance) on renewal if the policyholder has made a claim in the previous year. “We have seen that if a party makes a claim in a given year, it is likely that the insurance company may increase the premium because you have made a claim. To some extent, it means they are doing underwriting at the time of the claim. And that is not the way you do underwriting. That is what we are bringing in draft regulations,” he had said, at an industry conference earlier this month.

“The draft exposure guidelines state that premiums shall not be allowed to increase for a period of one year once the product is cleared by IRDA. For any pricing change, the insurance company has to submit recent three years claims experience on the original pricing, along with the expected experience and the reasoning,” said a senior executive with a large private sector insurer. “Medical inflation is a cause of concern to insurers, and pricing of health insurance products need to factor in higher claim costs at the initial stage itself, obviating the need for steep price revisions in premiums in subsequent years.”

Many policyholders have in the past accused health insurance companies of hiking premiums manifold at the time of renewal without offering any explanation for the revision. “In the past, there have been instances where some insurance companies offered teaser (extremely low) premiums in the initial years to attract new customers and subsequently charged a much higher renewal premium,” said Mahavir Chopra, head, e-business, medimanage.com, a health insurance advisory firm. “As per the new recommendation by the IRDA, the renewal premiums of new health insurance products can go up only in accordance with the five year premium chart furnished upfront. It will be applicable for first five years from the date of the launch of the product. However, if an individual buys that health insurance product after two years from the date of the launch, he/she will get the benefit of knowing the subsequent premium outgo only for three years,” Chopra said.