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India : Regulator warns against Loss making Group-Health Covers.

October 20, 2014

The insurance regulator has warned insurance companies that they would be penalised if they accept group health covers at a loss because such losses would ultimately be subsidised by individual health insurance buyers.

The Insurance Regulatory and Development Authority (IRDA) has also called insurance companies to come up with savings linked health insurance plan so that individual buyers do not see a spike in rates as they age, reported the Times of India.

Group health insurance is expected to become more expensive for companies where hospitalisation claims from employees exceed the premium paid.

At present, large companies with loss-making group health covers continue to escape rate hikes by shopping for new insurers. The chase among health insurers to build up top-line growth has resulted in their willingness to accept business even if there is little likelihood of generating a profit. According to IRDA, insurance companies cite these high losses to raise rates on individual policies where the buyer does not have bargaining power.

“We have seen cases where insurers are quoting rates below their burning cost. Since insurance business is nothing but pooling of resources, it is clear that if group premiums are inadequate, they are being subsidised by someone else,” said IRDA chairman T S Vijayan said in his address at a health insurance summit organised by the National Insurance Academy in Mumbai. Burning cost is a measure used to calculate the premium required to cover claim payments.

“We are going to increase solvency margins for companies that accept group health insurance at rates below their burning costs,” said Mr Vijayan. “If the group health premium is below the burning costs, we want you to inform your board about this. This will bring discipline into the underwriting process,” he added.

Speaking of the need for affordable cover for older customers, Mr Vijayan said: “It is essential that there is some kind of a savings-linked health insurance plan. Rather than the premiums going up by leaps and bounds with age, a portion of the premium could go towards savings to be used in old age.”

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