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To improve the health portfolio of insurance companies as well as to ease the process of renewal of these policies, insurance regulator IRDA is considering a proposal to allow five-year policies.
Under the present health insurance regulations, general insurance companies can offer renewals only up to three years. Most policies, however, are for a year. General and standalone health insurance companies have been asking IRDA for permission to offer longer-term products.
This is especially because these policies are small-ticket items, with premiums ranging between Rs 5,000 and Rs 20,000 a policy.
A senior official of the Insurance Regulatory and Development Authority said a sub-group was formed to work on the proposal. “We are working on the underwriting and pricing parameters for it,” he said.
A long-term policy is beneficial for customers because the renewal will be guaranteed and less cumbersome for customers, said industry experts. For insurance companies, customer acquisition, printing and issuing of policies are big one-time costs. For customers, long-term policies offer better value as insurers propose to price them lower by factoring in the no-claims discount into the premiums. Also, a long-term policy reduces the possibility of it lapsing.
Rising costs
According to V. Jagannathan, Chairman and Managing Director, Star Health Insurance, “The advantage in having a longer term policy is that the commitment of the insurer is locked in for five years. However, for health insurance companies most claims come in the third or fourth year, so we will have to study the pricing mechanism before coming out with such policies.”
General insurance companies are not very enthusiastic about offering the same premium rate for five years, considering the rising medical costs. There are some practical difficulties, too.
Antony Jacob, CEO of Apollo Munich Health Insurance Company, points out that an amendment to Section 80D of the Income Tax Act would be required for such policies to be rolled out. Currently, the exemption given is only for the premium paid annually from the current year’s income.
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