Public general insurers might charge lower premium on health products

Department of financial services says PSU general insurers can determine acquisition costs for each age group

Public sector general insurers might reward customers of health insurance policies with lower premium. According to the directive of the department of financial services (DFS) of the finance ministry, public general insurers can determine acquisition costs for different age groups, given the combined ratio does not exceed 100 per cent and management expenses are within the limits of the Insurance Act.

The DFS directive came after four PSU general insurers, National Insurance, Oriental Insurance, New India Assurance and United India Insurance, made a representation the earlier rules were affecting them.

According to insurance officials, this move could lead to a reduction in costs for consumers.

“The customer, in the long run, will get better premiums, since companies can fix acquisition costs based on the different age groups,” said a senior official with a public general insurer.

Another official with a PSU general insurer added that since companies could manage these costs better, there could be incentives in the form of reduction in premiums, especially for customers in the age groups of 20-45 years.

In September 2012, DFS had directed these insurers that in the individual health segment, acquisition cost should be restricted under 15 per cent for the insured below the age of 35 years, 12 per cent for 35-45 years and 10 per cent for 45 years and above.

DFS had earlier said that for third-party motor insurance, the commissions/ brokerage/ discounts/ other incidentals shall not go beyond 35 per cent. In its new directive, DFS has deleted this requirement.

This provision could lead to an increase in penetration of third party motor insurance. "While third party motor is a mandatory product, there are a large number of uninsured vehicles plying on the streets. With the removal of the cap on commissions/discounts, there would be an increase in sale of these products, both due to the push from the agent and discounts/incentives for customers," said a senior official of a state-owned general insurance firm.