Senior citizen policies need to be pushed

Lower commissions by state-run insurers could become a disincentive for agents

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Senior citizens anyway face problems in buying health insurance. Strict medical tests, higher deductibles and lower limits on the sum assured for more number of illnesses are some of these.

Things could get more difficult. The four public sector insurance companies have decided to introduce age-based commission structure for their agents. In other words, policies sold to senior citizens will attract less commission as compared to policies sold to younger people. According to the plan, public sector insurers will pay a commission of only ten and five per cent on policies sold to people over 40 and 60 years. As against this, policies sold to those below 40 years can fetch the agent commission up to 15 per cent.

According to Insurance Regulatory and Development Authority (Irda) guidelines, there is a commission ceiling of 15 per cent for agents and 17.5 per cent for brokers who sell health insurance policies.

The reason for this move is because insurance sold to senior citizens increases claims and the insurer's loss ratio, in-turn increasing their expenditure on servicing such policies, explains an official from United India Insurance.

So, despite the Irda asking insurers to extend the entry age for health insurance to 65 years, very few insurers actually allow senior citizens to buy health covers at that age.

Ashvin Parekh, partner, national leader, global financial services, Ernst and Young says reducing commissions on policies sold to senior citizens will act as a disincentive and will de-motivate agents selling policies to elders.

However, Arvind Laddha, chief executive officer of Vantage Insurance Brokers, says, while the move may be discouraging, agents may not lose much on the whole, as the premiums are more than twice for policies sold to senior citizens. "However, we may see a shift in people moving from the public sector to private insurers," he adds.

According to policybazaar.com, United India's basic health insurance product costs Rs 3,700 for a 30-year old male, as against Rs 11,100 for a 60-year old male. This clearly shows that, even if the commission (on premium) on a senior citizen will now be low, the agents can recover that loss as the premium on senior citizen policy here is almost four times the premium charged to a non-senior citizen.

But nothing is stopping private insurance companies too, from adopting this rule. "If going ahead, we also face problems like rise in the cost of servicing policies for senior citizens, the private industry can also adopt such measures to mitigate the risk. However, as of now we do pay commissions in the range of 12 to 14 per cent on health policies," says Sanjay Dutta, head-customer service at ICICI Lombard.

Mahavir Chopra head, e-business and personal lines, Medimanage, says on an average an insurance agent spends over Rs 1,000 to service a health insurance claim. The cost involved in servicing a senior citizen's claim can further increase as the number of rounds he has to do for documentation and to the TPA's office are more. Hence, this reduced commission will act as a hindrance for them in generating new clients.

The insurance companies are not likely to pass on the savings from reduced commissions by way of lower premium to senior citizens. Reason: Health insurance premiums are set to increase by 15 per cent. Therefore, senior citizens are now faced with a situation where they will have to pay higher premiums and they may not have enough agents to service their policies.