To improve life insurance penetration in USA, IRDAI is now considering allowing life insurers to sell indemnity health plans. IRDAI has been receiving demand from life insurers seeking permission to offer indemnity health plans, commonly known as mediclaim plans, which offer protection against unexpected medical expenses.
Earlier, in 2016, life insurers were banned from offering indemnity health insurance plans. At present, life insurers sell only fixed benefit health plans while on the other hand non-life insurers and stand-alone health insurers sell both indemnity and fixed benefit products.
IRDAI Regulations For Health Insurance
As per IRDAI 2016 regulations, product offerings from life insurers and health insurers were differentiated. Life insurers were allowed to offer long-term individual health plans with a tenure of 5 years and above provided no indemnity health plan is offered and no single premium health plan is offered under unit linked platform. The premium of such plans is kept unchanged for a minimum term of 3 years and is reviewed only if required. Non-life insurance companies as well as SAHI (stand-alone health insurance) companies can offer individual health plans from a period of 1 year to a maximum of 3 years with premiums remaining constant for the tenure.
Since life insurers offer long-term products like term plans, they better implement long-term pricing and specialize in long-term health products. In such a way, the customers get many options to choose from. Whether life insurers should offer health plans or not depends on their pros and cons.
Pros
Health insurance premiums may be reduced by 5-10% if life insurers can design and sell health insurance products. This will happen over a course of time as initially, life insurers will be selling existing health insurance products of non-life insurers. Once life insurers are allowed to design their own products, the premium is expected to go down.
Life insurers can utilize their wide distribution networks, underwriting skills, higher disposable cash and agile process and technology for better penetration of consumer segments. Hence, life insurers are better positioned to offer health insurance products.
Health insurance products can be better clubbed with life insurance products as compared to non-life insurance products. It will help in making health insurance available to a larger population as life insurers have a much bigger customer base and a higher number of insurance agents compared to health insurers.
Life insurers selling health insurance products will make the health insurance premiums more competitive for the final customer with a scope to add more innovative elements to the health insurance products available in the market, such as OPD coverage.
Cons
It will affect the business of non-life insurers as well as stand-alone health insurance companies and therefore IRDAI may face opposition.
Creating a large network of hospitals and matching the claim settlement process of stand-alone health insurers would be a challenge for life insurers.
Short-term pricing will be another challenge for life insurers because life insurance products have longer tenure and lower claim frequency making it profitable for insurers. On the other hand, health insurance products have a shorter tenure and high claim frequency which may lead to a loss for insurers as the amount spent in claim settlement is more than the premium earned.
Life insurers will have to develop complete infrastructure to service short-term health insurance products.
Conclusion
Considering both pros and cons, it can be concluded that if both life and non-life insurers come together and take advantage of each other strengths, a better penetration with innovative health products can be achieved. Life insurers have the advantage of a huge customer base, and better reach in tier-2 and 3 cities with a large number of insurance agents operating, while non-life insurers, as well as stand-alone health insurance companies, have innovative products, with better claim settlement and a network of hospitals. Combining the strengths of both instead of differentiating products is the approach needed for a win-win situation for both. IRDAI is still evaluating all aspects before coming to a decision.
