Year 2011, Portability in Health Insurance has been the buzz word around the media , the health insurance consumer as well as the Health Insurance Industry. Consumers were happy that they were now free to port their policy from their existing insurer, and move to a better one.
Unfortunately, the excitement was short-lived. Insurers, (for reasons discussed further), used many grey areas, to ensure they never accepted any "adverse" (Older Age, Claims in previous policies, Pre-existing conditions etc.) case.
It has been a Catch 22, Most consumers who wanted to port policies were people who have had a bad claims experience, on the other hand, Insurers were not interested to take cases where there have been claims experienced in the policy.
When you speak to Insurers, they seem to have a reasonable stand. According to them, there is an assymetry in the economic model of portability, given the premium for continuity has been enjoyed by Insurer A, while the claims expected after continuity are settled by Insurer B.
Since, denial of portability was barred by IRDA, it was observed, that in case of adverse proposals, Insurers were avoiding portability, by applying
a) Loading for adverse proposals or
b) additional conditions like copay
Post complaints from customers, IRDA, the Insurance regulator, issued a clarification note, this month, for "loading" on Portability proposals, clearly barring Insurers from adding any additional loading, as a precondition to portability. As per IRDA, the pricing and terms for products filed with IRDA, have already considered the coverage of Pre-existing beyond waiting period, and hence there cannot be any additional loading applied on premium, as a precondition to acceptance of portability.
This looks like a great win for customers, but in my view, knowing Insurers for almost a decade now, this clarification will only result in increased resistance from Insurers to accept portability proposals.
As mentioned earlier, Insurers through the years have realised that 4 years waiting period does not help avoiding claims for pre-existing and in fact, claims do start pouring in after this stipulated waiting period, resulting in huge losses. This is one of the core reasons why Health Insurance Companies are resisting acceptance of risks, and providing credit for waiting periods and exclusions for an ageing customer, without enjoying the benefit of claim-free premiums paid to the earlier insurer. For instance, A customer may have paid premium for say 10 years to an insurer X, and now decides to port to Insurer Y. The new insurer Y, is exposed to risks of a 10 year old policy, without any waiting periods, without enjoying the claim-free premium for the last 10 years.
In our opinion, in the long run, there is a need to create a portability pool, where, on portability being accepted by the new insurer, the old insurer deposits a certain share of premium to the pool, when a customer ports out this risk from his book. The new insurer should be partly compensated using this pool.
Here's the extract of the clarification released by IRDA.
All Non life Insurers, 1st December 2011
Re: Clarifications on Portability Circular dated: 9th September 2011 Ref: IRDA/HLT/MISC/CIR/209/09/2011
In the context of portability, certain clarifications were sought by different insurers and this circular is issued clarifying the questions raised.
Question 1: All insurance policies are required to obtain F&U clearance of IRDA; any changes in the terms and conditions or other features can only be done with the specific approval of the IRDA. In this context, certain insurers have asked the question that porting in and porting out of policies is not a condition which has been incorporated in the policies which there are extant F&U clearances. In such a situation, is it necessary for porting in and porting out conditionalities to be specifically once again filed and cleared?
Clarification 1: It is hereby clarified that the facility of porting, within the terms of circular dated 9th September, 2011, has been mandated as a measure in the interest of all policyholders. Such measures will have an overriding effect and its implementation will not require any fresh F&U clearance. Changes of any other features, however, not related to portability will continue to be governed by the F&U regulations.
Question 2: Portability can be opted by the insured only at the time of renewal by making request for portability at least 45 days prior to policy renewal date. There is no option to seek portability during the currency of a policy and the porting Insurer is not bound to accept any such request from the insured.
Clarification 2: YES
Question 3: Portability Guidelines allow acceptance of short period premium of at least one month in case the portability request has not been disposed of by the new insurer. It has to be subject to the condition that in case there is any claim during this period, the claim will be accepted and Insurer can ask for the balance premium for remaining part of the policy year since the pricing is based on premium for full policy year and not month to month or short term premium. In such cases, the insured would be liable to pay the premium for the balance period and continue with existing insurer for one more policy year.
Clarification 3: YES
Question 4: As the product pricing is done on the basis of waiting periods provided for in the policy terms, any credit or waiver of the same pursuant to portability would require loading. Hence, Insurer can apply loadings on all policies porting-in, wherever credit is being claimed for PEDs or other waiting periods, in proportion to the credit claimed. Further, Insurers are allowed to impose disease based loading depending upon the outcome of medical underwriting at the time of porting. Insurers may keep IRDA informed of the loading structure.
Clarification 4: Product pricing has already factored in the restriction on claims imposed by PED conditions. As such, no additional loading on account of portability is permissible.
Question 5: In case the existing insurer after repeated follow ups does not provide the required information/data within the specified timeframe in respect of a particular portability request, the porting insurer has the right to deny porting to the insured by citing the said reasons.
Clarification 5: The matter may be escalated to IRDA before denial. If the insurer fails to provide the required information/data within a specified timeframe in respect of a particular porting request, it shall be viewed as violation of the direction issued by the Authority and shall be subject to penal provisions under the Insurance Act, 1938.
Question 6: Certain insurers have sought clarification whether commissions may be paid to the intermediaries on the acceptance of a ported policy.
Clarification 6: As portability is an option given directly to the insured, there is no role of an intermediary and, hence, no commission shall be payable to any intermediary in the year of porting.
(J. Hari Narayan)