A few days back, IRDA, the apex regulator of the Insurance Industry released a circular giving guidelines on introduction of portability of Health Insurance/Mediclaim in India with effect from 1st July 2011.
(Note, there are certain companies which offer portability of benefits to their products even today, but this is as per their own guidelines and procedures. Inquire with us, if you are interested)
The initiative to bring in a process and guideline to enable portability is a welcome step by IRDA. The circular released displays great intent on the part of the regulator to free the customer from being stuck with the same insurer, fearing loss of benefits of continuity, thus kick starting a competitive health insurance environment.
Ofcourse, Health insurance portability has its flip sides and apprehensions. Government Insurance Companies hold more than 60% of market share in Health Insurance. Even today, Most in the industry are aware, that Govt. Insurers, leave other complex issues, are not equipped to port their own policy smoothly from one intermediary to another even in the same divisional office! Owing to empanelment of multiple TPAs at every divisional office of Govt. Companies, there doesn’t seem to be a global customer-wise health insurance database readily available to retrieve past claims information, even within the same company.
What will be the process for a policyholder to port his policy
- The policyholder will apply in the usual process (like a fresh application) to the new Insurance Company, providing current personal and health details of the family members to be covered in the proposal form.
- The proposal forms are likely to have a section to enable portability. Information regarding previous coverage would be captured. Customers may have to also attach proof regarding previous continuous coverage.
- The usual underwriting process would be carried out by the Insurance Company to assess the risks in the proposal.
- If the proposal is accepted by the Insurance Company, the Insurance Company will have to provide relief for waiting periods which the customer has already gone through in the previous insurer’s policy to the extent of the previous sum insured. For instance, in case a policyholder has been continuously renewing his policy for last 4 years with a certain Insurance company and now wants to port to a new Insurance company which has a 4 year waiting period for a list of ailments, such waiting period would be waived for this customer, through a credit of 4 years from the existing insurance policy.
How will Health Insurance portability help customers?
Health policy Portability will empower unsatisfied consumers to move to an Insurance Company of their choice. Especially in the Retail segment, Portability will bring in more competitive environment and better service experience. In the current scenario, renewal of health policies is the headache of the customer. In the portability scenario in the long run, Health Insurance Companies will have to win their renewals through better service, responsiveness and claims experience. The no. of policies an insurer is able to retain will reflect the customer satisfaction.
What would be the impact on Insurance premiums?
There is a good chance of a price war in the younger age segment. Insurers could slash premiums in the lower age bands to attract portability of existing customers.
On the other hand, portability are not likely to help policy holders in the older age bands (say, 50 and above) and policyholders who suffer from pre-existing ailments. As such proposals are likely to be denied by the new Insurance Company.
Sudhir Sarnobat says: “Remember, Coverage in Car Insurance factors in depreciation, which is not the case with Health Insurance”, here the new insurer will take the risk as a fresh risk with full coverage and only increase in premium without factoring something like the degeneration of the health.” For instance, a policyholder at the age of 65 would like to move to a new Insurance company accepting the premium of the new insurance company. The new insurance company taking up a case exposing itself to a significantly higher risk of claim, without enjoying premium for the past claim free period, which the earlier insurance company enjoyed. So in effect senior citizens and people with pre-existing ailments (especially chronic ones) would not benefit a lot from portability.
Would Insurers be bound to accept a proposal for Health insurance portability to their product? Can they reject an application?
Note, the proposal and underwriting processes of Insurance companies will not change due to portability. The sum insured in the expiring policy cannot be the basis of what the new insurer will be ready to accept. The acceptance of risk would depend on the normal risk underwriting process. In fact, due to an already existing policy being declared for portability, the underwriting could demand additional claims history information for the past policies from the customer.
Once and if the proposal is accepted, the waiting period credits would have to be given in the new policy. The underwriter of the insurance company continues to hold the discretion to deny a proposal.
What happens if the customer applies for an increased sum insured in the new ported policy?
For instance, if the customer has a policy been continuously renewed for the last 5 years and has a sum insured of Rs. 2 Lakhs, and now he/she wants to port the policy to another insurance company with a higher sum insured of say Rs. 5 Lakhs. The portability relief in waiting periods in the new policy would only be to the extent of Rs. 2 Lakhs sum insured. The waiting periods for the additional sum insured of Rs. 3 Lakhs would similar to a fresh policy.
What are the important things to take care when applying for Health Insurance portability?
- A customer looking at moving out to another Insurer should start the application process atleast 45 days before the expiry of the existing policy. This will give ample time to the new Insurance Company to underwrite and accept the risk and then retrieve information from the earlier Insurance Company.
- The customer should preferably employ a Broker. Since a Broker deals with all Insurance Companies, one would get good guidance and advise regarding the Insurance company to select.
How will sharing of data between Insurance Companies on a common platform affect the consumer/industry?
Firstly, Insurance companies, especially the government companies and many private players do not seem to have a CRM in place, which can retrieve Policyholder wise data across various years of renewal. Secondly, there is no unique id or account number across Insurance companies for the information for one policyholder to be consolidated. IRDA in December 2010 did talk about an unique Insurance Account no. Only once this unique number issuance is effective across all companies, the consolidation and hence sharing of information would be possible.
Some questions which we expect answers in coming times:
1. Insurance Companies would have to make major changes in their processes and database infrastructure to be able to retrieve information of one customer across several years of renewal. In case the customer has moved from one divisional office to another, then the issue becomes even more complicated. Most government insurance companies are not interconnected to retrieve information of one customer across divisional offices.
2. Till the unique Insurance Account no. becomes effective across all Insurance companies, there would be no consolidation of data possible. Insurance companies would have to share information on a case to case basis. This is going to be an extremely tedious process, with huge bottle necks.
3. We expect more clarity on binding the insurance company of the expiring policy to provide the required information to the new insurer in specified time limits, so that smooth portability can operate. Any mischief here could result in major hiccups in porting the policy.
4. The circular currently only talks about credit for waiting period for continuous renewals and not for credit related to No Claims Bonus or Discounts, which is fair as retrieving information regarding claims is even more tedious in the current data management infrastructure.