Irda further tightens reporting of group health pricing

Recently, Irda had cracked down on general insurance companies offering heavy discounts in the group portfolio

The Insurance Regulatory and Development Authority (Irda) has tightened its norms around reporting of group health risks. In an additional communication to an earlier circular regarding the burning cost risk pricing, Irda has said since industry-wide burning cost is not available with the Insurance Information Bureau of India (IIB) for group health, insurers should make detailed disclosures while underwriting such risks.

The regulator has said if an insurer chooses to use the ‘burning cost’ of a particular risk-based on its own past experiences and the risk was earlier with the other insurers, then this has also to be reported to the board of directors.

Burning cost is the estimated cost of claims in the forthcoming insurance period. This is used by insurers to protect themselves from larger claims that exceed premiums paid.

For underwriting any group health risk, Irda has said till such time that IIB comes up with an industry-wide burning cost, all insurers will use the input format designed by the General Insurance Council without any exception while underwriting any group health risks. Additional information can also be sought from the proposer before deciding to underwrite any policy.

Irda had recently cracked down on general insurance companies that offered heavy discounts in group portfolio in order to attract and retain large corporate clients. In its guidelines on risk pricing, the regulator had said industry-wise loss cost must be the starting point and should be considered for pricing a product. With this, heavy discounts, especially in group health, are expected to cease and premiums might increase.

The Irda communication said insurance companies could consider the burning cost of a particular risk on its own past acceptances for all available products. It added since burning costs for property risks published by IIB are for perils other than natural catastrophes such as STFI (storm, tempest, flood and inundation) and earthquake, insurers need to consider adequate pricing for the said risks if offered.

Applicable on fire, property and group health space in the initial phase, this will be enforced from February 1, 2015. Fire, property and group health segment have seen heavy discounts offered in spite of insured losses going up.

The insurer's own experience on procurement and management costs also needs to be considered to a large extent of current levels, Irda said. According to the regulator, risks are not being adequately priced because of aggressive competition in the market.

If the board of an insurer accepts burning cost which is lower than the above-mentioned, subject to natural catastrophe covers or based on experience, the board has to give an approval. Further, this has to filed as an exception report and Irda will formulate suitable standards for bringing it out on a regular basis.

According to experts, unhealthy competition is eroding the group health space with prices as low as 10-20 per cent lower than claims experience. The regulator is looking closely into this matter and will look at having higher capital requirements or solvency rates for those insurance companies who quote un-viable prices.

In a bid to retain corporate accounts, certain non-life sector insurers are indulging in this practice of offering high discounts. Industry players said there is not just transfer of accounts from private to public, but also from one private non-life insurer to the other. Industry experts believe it is not sensible to offer discounts to large profitable firms, since they are capable of purchasing insurance without a subsidy.

Health insurance, which has a 23 per cent market share in the general insurance space, has seen the incurred claims ratio touch 96.43 per cent in FY13, compared to 94 per cent in FY12. While the incurred claims are still less than 100 per cent for public-sector general insurers, private-sector general insurers have seen it cross 100 per cent. This means, the claims incurred are more than the premiums paid for private general insurers.