Panel on health insurance wants 5-year products on pilot basis

The expert committee constituted to examine health insurance framework in India has said that there should be pilot products for insurance with a five-year period. As per the report submitted to the Insurance Regulatory and Development Authority of India (IRDAI), the committee recommended that insurers may have a category of closed-end products (termed pilot products) running for a period of 5 years from the date of launch of the product.

These products would cover risks that are otherwise generally declined or excluded today, where they have the option to renew or not to renew after a period of 5 years. This is to encourage new and innovative products. However, after 5 years they have to confirm it as a regular product that would be subject to the various provisions of implied renewability.

For product pricing, it has recommended that there should be an inclusion of an inflation benchmark (CPI+3 per cent) that allows an automatic increase in premium to take care of medical inflation year on year. This is a cap and insurer can increase up to this limit. It said that any higher increase would require the Authority's approval.

IRDAI had constituted a 11 member committee in December 2014 with members from private sector and public sector life and general insurers, apart from members from the regulatory body and General Insurance Council to look into products, distribution, financial matters, M&A and policyholders' interests in health insurance space.

The committee said that there should be entry-age based pricing where it has to be ensured that the premium reflects risk at the age of entry into the pool - creating an automatic, structural, incentive to attract the younger population and keep them in the insured pool. Here, entry age based pricing also means that a first time entrant which is an older life would be charged more than a similar aged life, which has entered the pool in the past and has stayed insured.

Further, the committee has said that insurers and TPAs should have systems in place to identify, monitor, control and deal with fraud (including hospital abuse) by various agencies including healthcare providers. Regulator should direct Insurers and TPAs to put systems and internal processes in place for detection of fraud and its mitigation.

It has further proposed that there should be greater transparency and clarity to enable policyholders to understand the boundaries of coverage in their policy. "An industry level collaborative effort, through a joint mechanism involving the two councils, would be required to minimise subjective and varied interpretation of policy terms and conditions, which is the root cause of disputes between the insurer and the policyholder," it said.

Tax incentives should be extended to encourage insured to buy such savings linked health products to provide for health care costs for long term, it recommended. However, it said that unit linked insurance may be discouraged for health savings product so that policyholders are not exposed to market volatilities.

According to the committee, use of premium discount structures as a risk management tool to incentivise customers through wellness and preventive care mechanisms to actively manage health may be permitted. This, it said, is specifically recommended because not only does it lead to people being healthy but also reduces the claim cost in the long run for health insurers.