High group health discounts continue to worry insurers

Several private insurers exiting or cutting down on this business due to discounts

Heavy discounts in the group health insurance continue to be a source of worry for the general insurance companies. Though the Insurance Regulatory and Development Authority of India (IRDAI) asking insurers to refrain from this practice, high premium-related incentives are still being given.

The chief executive of a standalone health insurer explained tha several private insurers are exiting or cutting down on this business due to discounts.

"Large insurers, primarily public sector and few private, have made current rates unviable for us and others to compete. We have no choice but to give away our group health clients since we cannot do business at those premiums," he said.

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 to 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 that discounts 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.

Experts said that unhealthy competition is eroding the group health space with prices as low as 25-35% less than previous year inspite of claims.

To retain large corporate clients or to attract them with better rates heavy discounts are offered.

Due to this, there is not just transfer of accounts from private to public, but also from one private non-life insurer to the other.

The incurred claims ratio in health insurance has seen a rise year after year to about 101%. This means about Rs 101 is paid as claim for every Rs 100 collected as premium.

"Underwriting losses for the industry are on the rise in health segment due to claim-premium mismatch. This will affect combined ratios as well," said the chief executive of a mid-size private general insurer.

Motor and health insurance constitute the largest share of overall business of non-life insurers and contribute about 45-50% to the general insurance industry's premium collection.