With effect from 15 November, Reliance Health Insurance Co. Ltd (RHICL) will stop selling new policies and transfer all its policyholders’ liabilities and financial assets to Reliance General Insurance Co. Ltd (RGICL). RHICL was ordered to do so by the Insurance Regulatory and Development Authority of India (Irdai) as it has not been able to maintain its solvency margin, which indicates a company’s ability to cover its liabilities, since June 2019. Insurers are required to maintain a solvency ratio of 150%.
RHICL, which started operations in October 2018, has sold just 82,134 policies as of March 2019. These policies will now be taken care of by RGICL and there is no cause for panic for policyholders. We explain the process, but first a bit about what happened at RHICL.
What happened with RHICL
RHICL’s solvency margin dipped to 63% in September from 106% in June. In a letter dated 26 September 2019, the regulator asked the company to restore the solvency to the minimum requirement by 30 September. However, in October, Reliance Capital Ltd, the sole promoter of the insurer, admitted to not being able to restore the margin (in a letter to Irdai) and said that the proposed induction of a new investor was not proceeding as envisaged and, therefore, it would like to merge the company with RGICL.
Noting RHICL’s declining solvency, Irdai concluded that it won’t be in policyholders’ favour to continue the health insurance business. After weighing all the options and considering that Reliance Capital is the sole promoter of both RHICL and RGICL, Irdai decided to entrust RHICL’s insurance portfolio to RGICL. As of September, RHICL has a market share of only 0.01%, whereas RGICL has a market share of 4.63%.
Impact on policyholders
Irdai has asked RHICL to ensure policyholders are not impacted in the long run.
In a statement, RGICL said there will be no impact on policyholders due to the transition, which will begin from 15 November, and they will continue to avail the benefits as per the policies’ terms and conditions. “Customers will most likely not get impacted given that RGICL has mentioned there is only a marginal impact on their solvency ratio due to the merger," said Mahavir Chopra, director, health, life and strategic initiatives, Coverfox, an insurance broking firm.
During such events, insurers are required to submit plans of the merger to Irdai that include insuring seamless claims and customer service transition. “The products will get integrated into the RGICL portfolio and there could only be a change in the name of the products, customer service numbers, etc., which RGICL will need to communicate with the customers of RHICL. Policyholders need not do anything other than expecting communication through various modes and be aware of the change in toll-free numbers, website etc.," added Chopra.
Kapil Mehta, co-founder, Securenow.in, an insurance broker, too said no sizeable impact is expected because the insurer’s customer base is quite small.
According to Irdai, gross direct premium underwritten by RHICL till 31 March 2019 was only ₹4.09 crore, whereas RGICL reported ₹6,191.03 crore. “Similar situations have occurred in the past where one insurer has left the country and transferred their book to another so it’s nothing to worry too much about," said Mehta.
The way ahead
Irdai has asked RHICL to transfer RGICL all the investments pertaining to policyholders and those lying in shareholders’ account, bank balance and cash in hand and all cheques lying with agents and branches of RHICL by way of premium collection. RGICL has also been asked to maintain a separate account to disburse the liabilities (claims) of policyholders of RHICL which arise on or after 15 November. Until then, the liabilities will be discharged by RHICL.
The troubled insurer will have to give notice to all policyholders, informing them about the changes and about the procedure to file claims with RGICL to settle the claims. Also, RHICL shall completely stop underwriting new business; a communication about that has already been displayed on the company’s website.
After 15 November, RGICL will service the claims of the ailing insurer by displaying the procedure for the same on its website. Also, RGICL can neither sell any new policy on behalf of RHICL nor renew existing ones. Existing policyholders will be given the option to port their policies at the time of renewal to other insurers, including RGICL, which can’t deny a cover, said the company’s spokesperson.
“You can either keep your existing policy or you could port to some other insurer or product, including RGICL. In that case, you will get the benefit of the waiting period of the previous policy which means the waiting period for pre-existing conditions will be reduced," said Mehta. So if you’ve already spent three years in the previous policy, the three-year credit will get ported to the new policy. Other benefits such as the no-claim bonus is also transferred. You can port your policy provided both are indemnity plans that cover hospitalization.
RHICL policyholders don’t have much to worry about as of now. In due course of time, if you find the premiums to be high or the services not good enough, you have the option of porting to another insurer