Low combined ratios of health insurers are a major obstacle to lowering premium rates, insurers say


Deteriorating combined ratios – a measure of a non-life insurance company’s underwriting profitability – of health insurance providers are a major impediment to lowering premium rates, general insurance companies say. In the current scenario of underwriting capacity and risk pricing, premium rate reductions are only possible if hospitals reduce medical treatment costs, they said.

“Look at the industry as a whole. There are combined ratios of 120-125% (in the health insurance segment), meaning we take `100 from clients and spend `120-125. Customers are already getting great value. I don’t think companies alone can do anything today to reduce rates. This is reflected in their combined ratios and loss ratios,” a senior executive at a major general insurance company told FE.

A combined ratio (loss ratio + expense ratio) is a measure of an insurance company’s underwriting profitability after taking into account claims and operating expenses. The combined ratio in the general insurance business deteriorated to 119% in the first nine months of FY22, from 112% in the same period of FY21, with increased claims reimbursement of health costs due to Covid-19, according to a report by the rating agency Icra.

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“During Covid, we paid almost 25,000 crore in claims (general insurance and standalone health insurance companies combined). And the profit of the whole industry is less than 5,000 crores. So we paid five times the annual profit of the entire industry in claims,” the executive quoted above said.

Irdai Chairman Debasish Panda recently said that a major challenge is the high price of health insurance products. By providing affordable health insurance coverage for everyone by reducing their expenses, Panda recommended the use of cutting-edge technology to reduce product costs.

Another senior executive from a large general insurer said that during Covid-19 hospitals had increased the costs of procedures, but those rates have not come down so far. “At the moment, what is strange is that hospitals in India do not have a regulator. This is crazy and absolutely unacceptable. It’s such an important part of the social infrastructure of this country. Irdai must allow us some oversight of hospitals,” the executive said.

Industry insiders said there should be some governance over how hospitals are run and that insurance companies should have the ability to ‘blacklist’ hospitals that perpetuate cases of the virus. fraud. Steps should be taken to delist hospitals that overcharge patients admitted for treatment with health insurance coverage, they added.

Advanced technologies such as artificial intelligence (AI) can be used to identify fraudulent cases, where unnecessary medical procedures may have been used to overcharge. Sanchit Malik, co-founder and CEO of insurtech platform Pazcare, said, “Underwriting generation is a major challenge when it comes to selling insurance. And with a dense distribution network and inflated hospitalization costs, insurance premiums tend to rise over time. Technology, when implemented well, can help reduce insurance expenses. Insurtech companies should definitely look to solve the above two challenges.

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“For Tier II cities, insurance salespeople should consider increasing the network of hospitals they work with to sell policies at lower premiums,” he added.

In July, Irdai authorized insurers to incorporate hospitals or healthcare providers, who meet the standards and benchmarks specified by their respective councils, to broaden the scope of offering facilities without cash across the country.

To reduce costs for insurers and enable them to make products more affordable, the regulator proposed in August that the maximum commission or compensation payable on general insurance products, including health insurance products offered by general insurance companies, does not exceed 20% of the gross written premium in India during that financial year. And, the maximum commission payable under health insurance products offered by autonomous health insurers must also not exceed 20% of the gross written premium, it said in the notification.


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