The government has told state-run general insurance companies not to offer discounts on loss-making group health insurance policies, in an attempt to stem losses of close to Rs 1,500 crore these firms face in FY12. The move could lead to a higher premium on such policies.
The finance ministry has told general insurance companies to revise the premium upwards or stop renewing group health insurance policies to prune their losses, said a finance ministry official who did not want to be named.
The combined ratio – claims paid plus other expenses as a percentage of premium earned – is close to 150% now. The combined loss of state-run firms, mainly on account of such discounts on policies, is estimated to be close to Rs 1,500 crore for FY12. This has prompted the government, the owner of these companies, to issue the directive to cut losses.
“Public sector companies are giving huge discounts to grab market share. So our efforts will be to bring discipline to the group health insurance segment. There should be an audit of individual portfolios so as to ensure that segment-wise, there is no loss,” said the official.
State-run insurers, who dominate the group health cover segment in India, compete with each other and private insurers to retain or poach corporate customers by offering discounts on premiums.
The four state-owned companies – New India Assurance, United India, National India and Oriental India Insurance – have been facing huge underwriting pressure after prices were freed in 2007. The overall loss ratio of companies has been above 100%, which means they are making profit only on investment income. In 2010-11, New India reported a loss for the first time in more than nine decades. United India, however, has reported a profit of Rs 307 crore for 2011-12, while the others have yet to announce their results.
Interestingly, health insurance is one of the fastest growing sectors of general insurance, accounting for one-fourth of the total gross premium income, according to the finance ministry note. In spite of the heavy losses, widely acknowledged to be a product of inadequate pricing, many insurers continue to offer concessional premiums in order to sustain premium inflow.
The ministry also wants these insurers to restrict brokerage and commission to a maximum of 5% of the premium. It is also insisting on introduction of a co-payment ratio of 20%. The co-payment clause will ensure that the policyholder will have to pay Rs 20 for every claim of Rs 100. The ministry has also told companies to target and acquire customers from lower-age groups.
Further, to curb competition-induced losses, insurers have been directed to obtain a ‘no objection’ nod from the chairman of the existing insurer before underwriting a new business. Companies will have to share data on premiums, claims and frauds among themselves as well. The boards of state-run insurers will also have to review their performance every quarter.
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PREETI KULKARNI AND SHILPY SINHA
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