Optima Insurance Brokers Pvt. Ltd.

Since late June, several states like Assam, Bihar, Gujarat Haryana and Rajasthan have been hit by devastating floods, leading to heavy loss of lives and damage to livestock as well as property. The rising number of flood damage claims, pouring in from flood-hit states, has the general insurance sector worried.

It’s a matter of concern that catastrophic losses which are essentially Black Swan events, are happening every year. This will put considerable pressure on property pricing,” state-owned National Insurance Chairman Sanath Kumar told the news agency. National Insurance Company has received a total of 209 claims so far from Gujarat and Assam with a value of around INR230 million (US$3.6 million).

Mr M N Sharma, a director of, United India, said: “We’ve made a provision of INR150 million for claim settlement. But we fear the figure may increase.”

The death toll from monsoon floods in India, Bangladesh and Nepal climbed above 1,200 as at 25 August. All three countries suffer frequent flooding during the June-September monsoon season.

Thirteen Indian insurance companies have rallied together to use a blockchain-like technology to create a central repository of policyholder data, to avoid repeating the registration procedure for holders of multiple policies.

A whole lot of work has to be done in know-your-customer, medical underwriting, financial underwriting, etc, when a customer buys insurance. Duplication of these procedures can be avoided by having the entire data set on blockchain. When the same records are available to a number of life insurance companies in a chain, the cost incurred by them is lower compared to what it is when they were all separately conducting tests and storing records.

There are regulatory concerns regarding data privacy that need to be addressed. Once the system evolves it would help in reducing cost and improving efficiency. The savings in financial overheads due to the new technology are yet to be seen. But the consortium members are confident that greater transparency and reduced duplication would be beneficial for everyone involved.  Interoperability with other insurance companies — apart from banks, medical centres, among others — would be the eventual goal.

The Finance Ministry has directed state-owned general insurers to put in place an appropriate mechanism for pricing group health cover, as this class of business has been reporting losses.

The mechanism is to take into account the existing incurred claim ratios, management expenses, medical inflation, commissions, likely increase in claims due to ageing, increase in size of the group and the cost of underwriting.The advisory from the ministry is part of the various circulars on corporate governance, profitability and underwriting prudence that the government sends out from time to time.

State-owned National Insurance said it does have a pricing mechanism for its corporate health insurance products. “We always take into consideration the incurred loss experience of the past two-three years, cost of operations and the projected outgo in the coming year. The renewal pricing of each large employee benefit programme of corporates is always based on these broad parameters and then finalised in case to case negotiations,” National Insurance Chairman Sanath Kumar said. Oriental Insurance Chairman A V Girija Kumar said, his company adopts careful underwriting of group health business, which is in line with commercial prudence.

The Supreme Court has directed that motor insurance renewals are not to be allowed without a valid Pollution Under Control (PUC) certificate for all types of automobiles, in a move to crack down on polluting vehicles.

The Court ordered insurance companies to refuse renewal applications for vehicles without pollution certificates. It accepted the recommendations of the Environment Pollution (Prevention and Control) Authority (EPCA) to ensure mandatory linking of the PUC certificate with the issuance of annual vehicle insurance policies. The Court acted on a report prepared by the EPCA that showed a very poor level of compliance with the PUC programme.

In Delhi, only 23% of vehicles are sent for PUC tests. With mandatory linking of vehicle insurance with the PUC certificate, the compliance level can improve significantly, especially as the Supreme Court has directed its enforcement nationwide. To improve the effectiveness of the PUC programme, the bench of judges also directed that PUC centres to be linked online and a data centre set up to prevent manual tampering. Currently, the system is seen as plagued with corruption, improper testing and non-functioning equipment;,fake certificates, lack of qualified PUC operators, and poor enforcement of calibration requirements for testing equipment. The new directives can help to improve compliance and management.

India has several cities rated as worst in the world for air pollution. For example, the annual average PM2.5 concentration in Delhi is typically more than 10 times the US National Ambient Air Quality Standard of 12 micrograms per cubic metre.

India’s largest general insurer, the government-owned New India Assurance, has filed a draft red herring prospectus with the Securities and Exchange Board of India for a public listing.The IPO comprises a fresh issue of 24 million shares by the company, and the sale of 96 million shares by the government. The flotation exercise is expected to raise around US$1.5 billion.

The public issue will result in a 14.56% stake dilution for the government in the general insurance firm. The government will have a grace period of three years from the date of listing to meet the minimum public shareholding requirement of at least 25% shares held by the public.

The shares will be listed on the Bombay Stock Exchange and the National Stock Exchange of India.

India is projected to be in the top of the chart in the Asia Pacific region that would see maximum escalation of healthcare cost which are offered as a part of the employer benefits programme, according to the 2017 Global Medical Trends Survey.

In the region, India (20.0%), Indonesia (11.0%) and Malaysia (15.0%) are leading the upward cost trend, followed by Mainland China (10.3%), Hong Kong (9.6%) and the Philippines (9.6%).

The survey found that the medical insurers in Asia Pacific are projecting the gross cost of health care benefits to rise 8.6% this year.  Globally, the projected increase is 7.8%. Furthermore, the outlook for reining in costs in the near term is not optimistic. Half of all insurers in Asia Pacific expect higher or significantly higher medical trend costs over the next three years.

When asked what are the most significant cost-driving factors outside the control of employers and vendors, almost three-quarters (71%) cited the high cost of medical technology, followed by providers’ profit motives (47%).

Nearly three-quarters of insurers (73%) ranked overuse of care due to medical practitioners recommending too many services as the most significant factor driving costs related to employee and provider behavior.

Managing the medical trend

More employers are implementing both traditional and innovative approaches to manage rising costs. According to the survey, requiring pre-approval for scheduled inpatient services, placing limits on certain medical services and using contracted networks of providers are cited as the most effective tools to help manage costs.

Other findings from the survey include:

Non-communicable diseases- Insurers in Asia Pacific report cancer (82%), cardiovascular disease (72%), and musculoskeletal/back illness (44%) as the top three diseases.

Having good quality data and using it properly is important for companies in managing medical costs- Respondents in Asia Pacific are mostlikely to receive high-level claims or detailed claim data identified by top 10 causes or medical conditions.

Managing stress-  Concerns about employee stress continues to rise. While 61% of insurers globally now include treatment for mental health and stress in their standard medical insurance programmes, only 36% in Asia Pacific offer such coverage. Mental health remains an exclusion in many countries in the region.

The Indian government-sponsored crop insurance scheme (PMFBY) launched last year is losing its sheen for the global reinsurers.The coverage under the scheme has increased to 40 percent of cropped area in FY17-18. More than 1 million farmers have been given cover under this scheme, making India the third largest agriculture insurance market in the world after US and China.

The PMFBY will have a higher profile in FY2018 as the government has allocated INR90 billion (US$1.4 billion) for the scheme but may have to increase the provision. In 2016-17, the government allocated INR55 billion but later revised the Budget estimate to INR132.4 billion. Data from the General Insurance Council showed that compared to a market share of 5.5 percent in FY16, it grew to 16.1 percent in FY17.

Although claims amounted to a little over INR59.6 billion against more than INR158.9 billion in premiums, the global reinsurance have reduced their exposure. While the domestic reinsurer, General Insurance Corporation of India (GIC Re), is providing cover for crop insurance, this may not be adequate when 50% of cropped area is to be covered in FY19. Global reinsurance support would be required for that.

With effect from August 1, Insurance has been made mandatory for all Emigration Check Required (ECR) category passport holders who seek jobs in 18 countries which have been notified by India.

According to the Ministry of External Affairs notification, every Indian applying for emigration clearance from the concerned Protector of Emigrants (PoE) should obtain an insurance policy for a minimum period of two or three years and should be covered for a sum of Rs 10 lakh in the event of accidental death or permanent disability leading to loss of employment while working abroad. Insurance will be valid irrespective of change of employer or the insured worker’s location during the policy period. It’ll also remain valid during the person’s visit to India or any third country.

This move by the MEA through the Pravasi Bharatiya Bima Yojana 2017 scheme, will benefit nearly 70% of blue-collared workers proceeding for overseas employment. Most of the blue-collared workers going abroad do not opt for insurance and it’s only when something goes wrong they realize it’s important.The mandatory insurance cover will also help create a database of ECR workers abroad.

To ensure the financial stability of the PSU general insurers, government has ordered for the strict adherence to the prudent underwriting practices.

The Department of Financial Services under the Ministry of Finance sent a letter to the heads of all Public Sector Unit (PSU) general insurers on 28 June 2017 in this regard. The letter said: “To ensure that unhealthy underwriting practices in these companies do not cause unnecessary financial strain on their financial stability, it is desirable that prudent underwriting practices suggested in government advisories are followed strictly.”

A senior official of the Financial Services Department has confirmed by stating “It is true that we have noticed the gross misuse of underwriting rates in almost all general insurance firms in India. So, we have decided to take prompt and corrective action against those wrongdoings in the interest of customers/policy holders in this matter. We have also asked the Chairmen and Managing Directors of all PSU general insurers to kindly note the concern and strictly focus on prudence in underwriting.”

This move from the government is due to the fact that even after 17 years of liberalisation, the insurance industry continues to register huge underwriting losses every year, and it is an investment income which drives the growth of the industry.

IRDA allowed health insurance portability in July 2011.

Since then the number of health policies which have been ported is considerably small. As per the industry data only 1 lakh health policies in the financial year ended March 2017. The major proportion of such policies is of PSU insurers which were ported to private companies.

People want to port their policies for a number of reasons. One, they may have faced difficulties in the processing of the claim, they may not be happy with the features of their existing product or New products have come into the market that offer additional benefits.

Conversely, one of the main reasons for the low portability rate is that customers normally realize the need to port after a claim is made. Given that most claims are made because of lifestyle ailments, the new insurers approached may refuse to accept the policies offered because of the policyholders’ existing health conditions. Another reason is that agents are not remunerated for referring policyholders who wish to switch insurers.

As insurance experts we advice our clients to be aware of the product and its terms and conditions where he/she is interested in porting the policy. One needs to check the applicable waiting periods for coverage of pre-existing ailments, specific ailments, general exclusions, any co-pay /sublimates for ailment/ deductible applicable, in the new product before porting the policy.