The insurance industry is abuzz with unconfirmed news that life insurers might be allowed to offer indemnity-based health insurance plans. There are reports that claim that a committee formed by the insurance regulator IRDAI has proposed the idea to the regulator.
Notably, the insurance regulator had formed the committee in February 2020 to look into the feasibility of allowing life insurers to sell indemnity health plans. The committee hasn’t made any official announcement YET.
The current structure
There are two kinds of health plans – fixed benefit plans in which you get a predefined fixed amount against the claim made. In indemnity plans, you get reimbursement against your medical bills up to the policy coverage.
Life insurance companies can sell the fixed benefit health plans in the current scenario. For example, PNB MetLife India Insurance Co Ltd has launched a dental care plan to offer fixed benefits up to ₹50,000 for out-patient dental expenses.
Life insurers cannot, however, sell indemnity plans which is the sole prerogative of general or standalone health insurance companies.
What is interesting, however, is life insurers were allowed to offer indemnity health plans before 2015. It was only in 2015 that the regulator withdrew it.
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Should health be added to life?
Given the low penetration of health insurance plans, life insurance companies like LIC with their deep distribution network can help in reaching out to the uninsured population in far-off places.
“There is high complementarity between health and life insurance businesses. Life insurance companies can increase access of health insurance to tier 2/3 markets, especially companies such as LIC that have established large distribution in these areas,” says Rohit Sadhu, Co Founder & COO, Ensuredit.
However, it will not be feasible. Life insurers are not equipped to build capacity to underwrite and manage health insurance claims. Underwriting and claims management is expensive even for existing players.
Besides, the retail segment is challenging with high product complexity and the need for assisted sales. Data from Kotak Institutional Equities shows that retail health insurance accounted for 45% of total health insurance premium in FY2021; group health was marginally higher at 48%, the balance being government business.
“Health insurance is synergistic to retail term policies. However, health is a complex and high engagement product. It may be challenging for life insurance companies to scale up health in the immediate term; standalone health insurers will likely continue to gain market share in the interim,” Kotak says in its report.
Meanwhile, several non-life companies such as Bajaj Allianz and ICICI Lombard have decided to step up in the retail segment; but it is just the beginning.
Kotak report shows that standalone health insurance companies have 46 per cent share in the retail health segment with 24 per cent share for multi-line private non-life players.
At a time when even multi-line private non-life players are taking a guarded approach in the retail health segment, life insurance companies may not take aggressive stance.
How health riders help life insurers
Data linked to health riders and the resultant jump in business shows a positive tale. It may nudge life insurers to take gradual steps towards indemnity-based products. Data shows private life insurance players have rapidly grown in protection business, with share of protection increasing from 7% to 17% in FY2022 from 1% to 11% in FY2018.
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“Health riders have improved realisation for life insurance companies in the past. Retail health indemnity complements term insurance; the combined product will provide a complete risk solution to the retail customer. We hence believe that life insurance companies will add retail indemnity products to their portfolios even as execution may be challenging given the product complexities and high servicing.”
Sadhu of Ensuredit sees it driving innovation. “It will be interesting to see how health and life insurance bundles work, considering life insurance companies have access to a lot of data relevant to health insurance underwriting.”