A case for longer health insurance policies

Rising gap between health care costs & premium means consumers will be forced to have a higher kitty

Rising health costs and the increasing life expectancy is a double whammy for health insurance buyers. Today, after a particular age it is difficult to get health cover. Even if you do, it comes at an impossibly high premium.

In India, the gap between health costs and health insurance premium is as high as 15 per cent, say industry players. “That’s not all, health inflation is doubling and premia are not increasing at the same pace, this gap could widen in some time,” says Amarnath Ananthnarayanan, MD and CEO, Bharti AXA General Insurance.

One reason for these 'artificially' depressed premia is the focus on group insurance by general insurance companies. Most of them have traditionally offered group health cover at low rates as they could make up this gap through other products like fire policy and so on. But with health costs rising and claims going up, insurance companies have begun to feel the pinch.

For buyers, the first problem is that the longest term for health insurance policies available today is two years. General and standalone health insurance companies have been asking IRDA for permission to offer longer-term products. Swaraj Krishnan, chief executive officer of Magma HDI General Insurance Company says, “Today, everybody including the government is trying to figure out how self insurance can be extended. A long-term product could be one which is offered jointly by a life insurance and general insurance company. While the general insurance company can take care of the claims, the life insurance company can take care of the long term cover,”.

A long-term policy is beneficial for customers because the renewal will be guaranteed and people can carry it till they get old, Ananthnarayanan points out. Today, if you have made a claim during the year, there are chances that there will be extra loading on your policy, that is, the premium will go up next time. You may also find it difficult to renew if you have crossed a certain age. These issues can be taken care of if the policy is allowed for a longer time.

Issuing a long-term policy will also allow companies to amortise distribution costs over a longer period, which in turn can bring down premium costs, says the head of health underwriting, of a general insurance company. It will also promote healthy customers to remain with the company. So, companies will not feel compelled to raise premia every three to four years, he adds.

Globally, there are long-term life insurance products. But in India only life insurance companies offer long-term health cover as add on covers. However, these are benefit covers, which will replace loss of income in case of an illness and not a reimbursement product. The only option, in such circumstances, is to have a healthcare kitty especially for senior citizens, that is adequately funded at all times.