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'High claims ratio, inflation necessitate hike in health cover premium rates'

Insurers are seeking approval from Irda for increasing health insurance premium rates, R.K. Kaul, CMD, Oriental Insurance, tells Sarbajeet K. Sen and Chandralekha Mukerji.

Insurers are seeking approval from Irda for increasing health insurance premium rates, R.K. Kaul, CMD, Oriental Insurance, tells Sarbajeet K. Sen and Chandralekha Mukerji.

What is the status of negotiations between public sector non-life insurers and hospitals on the preferred provider network (PPN)?
We have come to an agreement on rates with most hospitals in Delhi, Mumbai, Bangalore and Chennai. There are some large corporate hospitals that are still not there. We have identified around 40 packages on certain medical procedures with a view to rationalise the rate structure of the healthcare providers. The hospitals that have agreed to a specific rate are in our preferred network where cashless facility will be available.

Are you hopeful that the ones that have stayed away will eventually come on board?
The doors have not been closed from either side. The big hospitals say that standardisation of rates is not possible given the variations in facilities and services.

How do you react to that?
The same corporate hospitals have standardised rates for the Central Government Health Scheme. If they could standardise the rates there, why is it not possible for us?

What has been the loss experience on the health portfolio in recent years?
The loss ratios on health are very high. Last year, our overall loss ratios were very high, around 120% (Rs 120 claims payout per Rs 100 premium collected). In the retail segment, it was around 90%. This year, we are having a better experience on the retail side because of the expansion of the pie.

"A hefty hike in rates will not be required if more people take medical insurance."
At present, the number of people buying health policies is low. This results in a higher rate of adverse selection, by which I mean that people who require medical treatment immediately are more likely to get insured than healthy people.

You said losses are coming down on the retail side. What about the group portfolio?
Our losses on the group portfolio were more than 120%. This quarter, we expect losses in the group portfolio to come down to around 105% and in the retail segment to 80%. We have been loading (increase of premium on renewal) group premiums on renewals depending on the loss experience and not bothering if business goes away.

Since the health segment is a bleeding business, are you looking to expand the portfolio?
We are going on aggressively despite losses because it is a very beneficial cover for the people. Last year, we grew our health portfolio by 50%. We see healthy growth going forward. Though people are more aware than before about taking a health insurance cover, the numbers are still low. Medical costs are rising. People often sell property or jewellery to pay for the hospitalisation costs. An insurance cover would help avoid such circumstances.

With medical costs going up, do you see the premium rates on health covers also rising?
The premiums have not changed for a long time, except for group policies, where loading has been done based on experience. The last time retail health rates were filed along with rates of other products after detariffing (of fire and engineering lines) took place in 2007. Medical inflation today is above 10% and the premium rates don't take that into account. Loading was allowed at one time, but that was not adequate.

I guess it is time to file new premium rates, supported by actuarial calculations. The regulator has to be satisfied that the rate increase is justified. To my knowledge, companies have started filing rates for revision (with the Insurance Regulatory Authority of India). We are also in the process of filing revised rates for the individual mediclaim policies.

Is the problem of the long gap in rate revision true for both public and private sector?
It is for everyone. It has been felt that companies should not unjustifiably increase premium for retail policies. The problem is a bit more complex for state-owned companies. We have been issuing these individual mediclaim policies from 1986. So, by now the age profile of our policyholders is towards on the upper side, which means that public sector companies will have more claims than those in the private sector. Also, as state-owned firms, we do not reject renewals, even if the claims experience was adverse. In fact, one should not reject renewals since it is not fair that once a person contracts an illness, you will not provide any further cover.

However, part of the problem of rates can be tackled if there are more people taking health policies. It will also take care of the adverse selection experience in the adverse age groups. If the expansion is really big, there would not be any reason for hefty rate increases also.

State-owned insurers are planning to have their own thirdparty administrator (TPA). What is the rationale for this?
The joint venture TPA is being proposed to have more control on costs. Many private companies already have in-house TPAs to handle claims. We cannot do it in-house as we are very big organisations and face problems on the logistics front. Therefore, we have decided to float a company, which will do that work for us.

How will it impact the business of the existing TPAs?
We are not planning to shift our entire business to the new entity. At best, we will give 75% of the business to the joint venture company and have some competition from the existing TPAs.

HEALTH INSURANCE: WHY YOU NEED IT
1. Are you protected enough?
2. Spreading the health cover wider
3. 'Health cover portability will improve industry'
4. Negotiated Settlement
5. 'Standardised rates will benefit insurers, customers'
6. Extra Cover! At What Cost?
7. 'Hike in health cover premium rates needed'