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Health insurers moving to geographical pricing

October 26, 2015

Insurance companies in India, hit hard by higher hospitalisation expenses in leading metropolises, are increasingly moving away from the concept of ‘one policy, one price’. Most insurers are switching to geographical pricing to address inconsistencies in healthcare costs.

KPMG, an international consultancy, estimates that 30% to 40% of all healthcare claims come from India’s top six cities, and their average claim size is about 30% higher than the all-India average, reported Business World. Mumbai is by far India’s most expensive city for healthcare. Its average claim size is 70% higher than the rest of the state of Maharashtra alone. “We have demarcated various zones across the country based on the prevailing medical costs and trends in costs,” said Mr Sandeep Patel, Managing Director & CEO of Cigna TTK Health Insurance. Zonal premium rates also take cognizance of the existing health infrastructure because tertiary care hospitals in the private sector are fairly expensive, said Mr Patel.

Zone-based health insurance pricing is seen as fair to people living in smaller cities. “Zone-based pricing ensures that customers in Tier II/Tier III cities do not cross-subsidise customers in a Tier I city by paying the same premium,” said Mr Patel. Keeping premiums lower in smaller cities also helps push purchases of health insurance in those areas, which Mr Patel said have a very low penetration compared to major cities. “I expect the pricing differential to grow to reflect the significant disparity between the cost of health care in leading cities and the rest of India,” said Mr Shashwat Sharma, Partner, Management Consulting, at KPMG in India.

To increase the penetration of health insurance in cities, Mr Sharma also expects insurers to take cognizance of the variations in the cost of healthcare between corporate hospitals and smaller hospitals, including those run by charitable trusts, and nursing homes. “The cost of health insurance must fall for huge numbers of low-income customers in metro cities to be brought into the health insurance net,” he said. “One way of achieving this is to offer policies for different classes of hospitals, based on the understanding that economically less privileged people would be willing to get treated in a less expensive government or trust hospital or nursing home.”

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