Detariffing in the non-life insurance market may well be the beginning of the end of cross-subsidisation and low premiums in group health insurance, with insurers now looking at pricing all their products individually.
Last year, the loss incurred by all insurance companies put together was close to Rs 400 crore (Rs 4 billion) with the claim ratio mounting each year. So, though detariffing may spell good news for insurance companies in the group health portfolio, corporates will have to rethink their strategy.
Before detariffing came into play, group health insurance policies were priced based on the risk profile of the overall insurance portfolio of the corporate, leading to cross-subsidisation.
"Now, in the detariffed regime, all products will be priced individually so the losses in the health insurance portfolio get curtailed," says Ajit Narain, managing director and CEO, IIFCO-TOKIO General Insurance.
This may even mean a hike in the premiums for group health insurance In fact, companies like Bajaj Allianz, besides pricing health insurance on a standalone basis will also work closely with the clients to try and control claims through tie-ups with various hospitals.
This is possible because Bajaj Allianz has an in-house health administration team to administer health insurance claims and is thus not dependent on any third party administrator or TPA.
Worth Rs 1,400 crore (Rs 14 billion) today, group health insurance, a non-profit portfolio for insurers, was until now being cross-subsidised with assumed profitable portfolios.
However, with the likely competition that detariffing will bring to non-life
insurance, and with the premiums likely to go down, the group health portfolio will witness a price rise. This may not be good news for corporates, which will now have to either reduce health insurance benefits for their employees or dish out the additional moolah.
Kartik Jain, marketing head at ICICI Lombard says, "Corporate consumers will have to reassess the covers being offered to their employees to optimise the cost benefit. Employees would also need to ensure that they have adequate cover for their family's health insurance needs."
The current scenario will also mean that group health insurance policies will now be underwritten keeping in mind the specific risk of the corporate. And though there could be an initial decrease in prices, Narain believes that over a period of time the prices will stabilise as per the associated risk factors.
K Krishnamoorthy, head of underwriting, Bajaj Allianz General Insurance, explains, "With the detariffing that has happened in fire, engineering, motor and workmens' compensation segments, it will help the insurer to price a risk based on the risk exposure instead of quoting a standard price without much relevance to the relative risk exposures."
Yet, even though insurance companies are likely to benefit from detariffing, it will also mean that in the face of increasing competition they will have to differentiate themselves in the market by better meeting consumer needs. As Jain puts it, "Product innovation along with service excellence will be driven by customer requirements."