Panel on health insurance wants 5-year products on pilot basis

These products would cover risks otherwise generally excluded today, with option to renew or not after 5 years

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An expert committee constituted to examine the health insurance framework has said there should be experimental products, with a five-year period.

In its report, given to the Insurance Regulatory and Development Authority of India (Irdai), it recommended insurers have a category of closed-end products (termed pilot products) for this much time. These would cover risks that are otherwise generally declined or excluded, where they have the option to renew or not after five years. This is to encourage new and innovative products.



After five years, the companies have to confirm a pilot product as a regular one, subject to the various provisions of renewability.

For product pricing, it has recommended inclusion of an inflation benchmark (Consumer Price Index rise+three per cent) to allow an automatic increase in premium to take care of medical inflation, year on year. This is a cap and an insurer may increase up to this limit. Any higher increase would require Irdai’s approval.



The regulator had constituted a 11-member panel in December 2014, with members from the private sector and public sector, of life and general insurers, apart from members from Irdai and the General Insurance Council. It was to look into products, distribution, financial matters, mergers and acquisition, and policyholders' interest in the segment.

The panel said there should be entry age-based pricing, where it has to be ensured that the premium reflects risk at the age of entry into the pool. This would create an automatic, structural incentive to attract the younger population and keep them in the insured pool. This also means a first-time entrant who is older would be charged more than a similar-aged life which has entered the pool in the past and stayed insured.



The committee said insurers and third-party administrators have systems to identify, monitor, control and deal with fraud (including hospital abuse) by various agencies, including health care providers. The regulator should direct insurers and TPAs to put systems and internal processes in place. It proposed greater transparency and clarity to enable policyholders to understand the boundaries of coverage in their policy.

"An industry-level collaborative effort, through a joint mechanism involving the two councils, would be required to minimise subjective and varied interpretation of policy terms and conditions, the root cause of disputes between insurer and policyholder," it said.

Tax incentives should be extended to encourage those insured to buy such savings-linked health products to provide for health care costs for the long term.  However, it said unit-linked insurance may be discouraged for health savings products, so that policyholders are not exposed to market volatility.

It says use of premium discount structures as a risk management tool to incentivise customers through wellness and preventive care mechanisms may be permitted. This, it said, is specifically recommended because it leads to people being healthy and reduces the claims' cost in the long run for health insurers.