Discounts being doled out to corporate customers in the group health segment are still a source of worry for the non-life insurance sector. While the regulator had earlier issued norms that solvency levels for segments like health be high, incentives have continued.
The chief executive of a mid-size private general insurance company explained that many private players have significantly reduced their exposure in the group health segment. Such discounts are given on the premium of group health policies so that corporate customers do not discontinue the policy.
The regulator has come up with new norms for maintaining solvency ratio by insurance companies based on each line of business. For segments like health, motor, and liability, the insurer would be required to maintain a higher solvency ratio, since not only the premiums, the incurred claims are also high. The incurred claims ratio in health insurance has seen a rise year after year to about 101 per cent. This means about Rs 101 is paid as claim for every Rs 100 collected as premium. Combined ratios in the health portfolio have crossed 140 per cent for many insurers in the health space. A combined ratio below 100 per cent indicates an insurer is profitable. This ratio is the sum of incurred losses and operating expenses, measured as a percentage of earned premium.
By Insurance Regulatory and Development Authority of India (Irdai), available solvency margin (ASM) is calculated as the excess of value of assets over the value of liabilities. Solvency ratio means the ratio of the amount of ASM to the amount of required solvency margin. The higher the solvency ratio, the more financially sound a company is said to be. The required solvency ratio by Irdai norms currently is 150 per cent, which is the minimum to be maintained at all times.
While the regulator has been apprised of the situation on several forums, insurance executives explained that some companies continue to subsidise in the group health space, which has led to un-viable rates in the market.
Irdai had earlier said that industry-wise loss cost must be the starting point and should be considered for pricing a product. It has also said that non-compliance with these norms, which included assessing the burning cost, will lead to penalties being imposed. However, while this was made applicable to segments like group health from early 2015, insurers said discounts will continue.
Burning cost is the estimated cost of claims in the forthcoming insurance period, calculated from previous years' experience adjusted for changes in the numbers insured, the nature of cover, and rate of medical inflation. This is a ratio used by insurers to protect themselves from larger claims that exceed premiums paid.
Claims officials of companies said even though group health claims have remained high, some insurers still choose to offer policies at lesser premiums, but by insurance underwriting norms, the premiums charged at the time of renewal should be higher. While some have been doing this to retain existing clients, others are cutting rates to poach clients from competitors.
Health is the second-largest business segment for general insurers after motor insurance. By data from General Insurance Council, non-life insurers collected health premiums of Rs 12,028.68 crore for April to August period, a growth of 18.5 per cent over the same period last year.