IRDA mulls savings-cum-health insurance policy

The Insurance Regulatory and Development Authority (IRDA) is considering allowing a savings-cum-health insurance product. This is to attract younger people towards health insurance, which is currently highly skewed in favour of older customers, accorging to the regulator.
A committee appointed by the IRDA has suggested that the health insurance portfolio of many insurers is highly skewed towards older people, as the younger population do not take health insurance cover in their prime. As the premium rates get revised upwards, the younger population perceives that they are subsidising the claim costs for policies of older age policyholders. This skews the insurer's portfolio towards older age people.

A panel headed by M Ramaprasad, member (non-life), Insurance Regulatory and Development Authority of India, in a recent report, said, ''Such a product could be a health insurance plan that provides an account to the policy-holder where she can put money to save for future medical expenses… ''

''Life-long renewability (guaranteed renewals) has given ample scope among the persons seeking health insurance covers for anti-selection against insurers. It is in this context some members strongly felt that the reserving regulations should provide for additional reserving for any product which has got guaranteed (or implied) renewability - both for limited tenure product as well as life-long renewable products,'' the committee pointed out.

Ramaprasad said all classes of insurers may be permitted to offer the product. The move is to drive growth in health insurance, which still remains last on people's priority list, especially in rural and semi-urban areas. The new proposal differs from a regular health insurance plan, which has no savings component attached to it but only a premium segment.

The proposed health savings account will offer interest, as even now insurers factor in this component when calculating the final returns, but cannot be operated like a bank account, and therefor not require the RBI's nod.

In the health savings account, the premium is to be divided into three components. While the first will be earmarked for the risk charges for health insurance, the second will be for expences, and the third will be the savings component. The panel has also suggested a mathematical formula for these components.

The health insurance component will have a guaranteed renewability for life but the risk charges could vary with the insurer having the right to review the risk premium rates annually.

The committee recommended the setting up of a working group to study the reports of insurers available with IRDAI on economic capital assessments and suggest the various steps to be taken with a definite time-frame towards implementation of risk-based capital adequacy norms.

The new product will also get the relevant tax breaks; premium paid for health insurance is now eligible for exemption under Section 80 D of the I-T Act, up to Rs20,000 every year.

While the plan may be new to India, it has been in vogue in countries such as the US for at least a decade. But, according to industry observers, since health-care is subsidised in many countries, there is little incentive to save for this purpose. Hence, it is not practiced as suggested by the IRDA panel.

With a premium collection of Rs20,450 crore last year, the health insurance business is growing bigger and bigger and the regulator needs to form separate regulations for the sector.