Post
de-tariffing of market in 2007 the general insurers in India have free market
approach to price their products except for motor third party insurance.
Sustainable growth is the life line for any business and insurance is no
exception to it.
Insurers must
have the 360 degree view of their business .The Regulator, who watches the
interest of the policyholders, however observed that despite its advisories the
free market regime coupled with intense competition amongst insurers &
their obsession for the top-line is resulting into deficient assessment of
insurable risks, in corporate sector, and that the prices are offered to these
corporate clients for property insurance and group health insurance at
non-viable rates which are ultimately subsidized by the buyers of retail
products.
Due to
aggressive competition the insurers were offering heavy discounts on portfolio
basis to retain their accounts and were quoting less than 10 to 20% below the
estimated outgo in group health segment to attract new corporate.
These corporate
with loss making group health covers continue to escape price hikes by shopping
for new insurers. The chase to build up top line and the pressure on marketing
force of the insurers for their targets resulted in health insurers willingness
to accept the business even not covering expected claim cost ignoring loading
for medical inflation, acquisition cost , servicing cost by third party
administrators and management expenses.
In a bid
to address this issue and to bring corporate governance in the business
behaviour of rhe insurers the Authority has prescribed its pricing prescription
which is applicable with the 1st day of 2015. The Authority's prescription for
pricing fire, property and group health insurance is to consider Burning Cost as
starting point to price these risks. This only can move market forward towards
claim plus pricing mechanism.
Burning
cost is the estimated cost of claims in proposed insurance period and is
calculated from previous year claim experience of the insurer duly adjusted for
change in number of lives and for changes in the benefit design proposed for
current year of the risk. IRDA in its advisory and prescription has made it
very clear that industry-wide losses should be considered for pricing the
product and insurers current level experience
of acquisition and management expenses should be loaded to
it.
The
industry-wide burning cost is available with IIB (Insurance Information Bureau
of India) for Fire and Property Insurance but such industry-wide burning cost
for group health is not available. The Authority is also aware that brokers are
not disclosing all details of group health experience to insurers at the time
of RFQ (request for quote).
In health insurance
the trend & incidence rate usually does not vary from year to year.
However, the average claim cost bears the impact of medical inflation to some
extent. Till the IIB is ready with the industry-wide Burning cost in group
health segment the authority has tightened the reporting parameters. It has
prescribed that the intermediary or the client will mandatory have to sign and
disclose the claim cost of last year and preceding two years in the input
format designed by General Insurance Council of India (GI Council). This will
surely improve the disclosure and will put insurers in a better position to
assess the risk on quality data necessary to price the risk.
With
uniform data now available to underwriters if any of them choose to price the
group health risk lower than burning cost than it will have to have the
approval of its Board of Directors. Further this will have to be filed in form
of Exception Report in a format to be designed by IRDA.
The
Regulator has initiated this move to see right pricing coming into the market
and corporate governance in the business behaviour of the insurers. The move
signals that premium for this fastest growing portfolio would be rising in last
quarter of 2014-15 or else there will be reduction in the benefits including
caps beings introduced for procedures or else employers will seek sharing of
cost from employees for present benefit design of their health protection
covers.
Nice One Blog On General Insurance.
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