Until now life insurance companies were allowed to sell only benefit-based health plans. On Tuesday, however, the Insurance Regulatory and Development Authority of India (Irdai) in a circular stated the formation of a committee to study the feasibility of allowing life insurers to offer indemnity-based health insurance policies.
“As of now, Irdai has only asked for a committee to be constituted. The reason why they’re doing this is because life and health policies are sold by a similar kind of advisory. They are both heavily advise-based products and though Irdai is saying health segment is growing at 20% CAGR, penetration is still quite low in the country. I think the biggest reason for doing this is to widen the base of advise-based selling," said Devesh Joshi, co-founder and marketing head, Renewbuy.com.
Indemnity-based health plans protect you against unexpected medical expenses by reimbursing the actual expense incurred on hospitalisation up to the sum insured. Some policies also cover OPD expenses. Fixed-benefit plans pay a fixed amount of money on filing a claim.
Irdai had first allowed life insurers to sell individual and group indemnity-based health plans in 2013, but in 2016, the regulator rolled back the provision and said life insurers could offer only combined health and savings products. Insurers offering single premium health products under unit-linked plans were also asked to discontinue with their offerings. Following this, general and health insurers could offer health policies with a minimum tenure of one year and maximum tenure of three years. Some health insurers sold long-term products even earlier but there was no regulation on this front.
Joshi said even now the benefit-based plans offered by life insurers have to be long-term, which makes it expensive whereas health insurers can sell policies on an annual basis at lower premiums. “If life insurers are allowed to sell indemnity plans we’ll have to wait and see what they are talking about because currently there’s just a committee set up to arrive at something," said Joshi. “But if it does happen, policyholders will benefit because they will have more options to choose from. I don’t think it will change business dynamics for insurers because I feel the health products offered by life insurers (if they’re long term) would be more expensive."
Biresh Giri, head of product development and chief risk officer, ACKO General Insurance said this was already the case before 2016 where life insurers sold health products but they were not able to scale up. “At the time the total health portfolio of general insurance stood at about Rs. 9,000-10,000 crore on the retail side. Against that, life insurers were able to sell only Rs. 300-400 crore. I think Irdai asked them to stop selling indemnity-based products because of lack of expertise and also some amount of lobbying from the health insurers as they were not specifically allowed to sell long-term products. Health insurers were also not allowed to sell any product that had a saving component," said Giri. Joshi too said life insurers were unable to create competitive health products because of the long-term nature of the policies. Though some health products by a few life insurers did well back then, lack of transparency in terms of premiums and returns was a problem.
Giri said Irdai may be looking into this now because life insurers are struggling with their growth and even though they weren’t able to do great business in the past through their health portfolio, as a product category it sells well. “In terms of being prepared and having a distribution network in place, life insurers can sell health products efficiently. They will, however, have to work on making the products more transparent like is the case with health insurers," he said.