Poor combined ratios of medical health insurance firms a giant hurdle in cutting premium rates, say insurers


Deteriorating combined ratios – a measure of underwriting profitability of a non-life insurance company – of medical health insurance providers is a significant hindrance in reducing premium rates, in line with general insurance firms. In the present scenario of underwriting capability and risk pricing, cuts in premium rates are possible provided that hospitals slash costs of medical treatment, they said.

“Have a look at the industry overall. There are combined ratios of 120-125% (in medical health insurance segment), which suggests we take `100 from the shoppers and we spend `120-125. Customers are already getting a terrific value. I don’t think corporations by themselves can do anything today to cut back rates. It’s reflected on their combined ratios and loss ratios,” a top executive with a number one general insurance company told FE.

A combined ratio (loss ratio + expense ratio) is a measure of underwriting profitability of an insurance company after factoring in claims expenses and operating expenses. The combined ratio across the final insurance industry deteriorated to 119% in the primary nine months of FY22 from 112% in the identical period of FY21 with a rise in health claims on account of Covid-19, a report by rating agency Icra showed.

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“During Covid, we paid near `25,000 crore in claims (general insurance and standalone medical health insurance corporations put together). And the profit of all the industry is lower than `5,000 crore. So, we paid five times the annul profit of the entire industry in claims,” the manager cited above said.

Irdai chairman Debasish Panda recently said that a significant challenge that should be addressed is the high price of medical health insurance products. Pitching for inexpensive medical health insurance covers for all by cutting down the expenses on them, Panda advisable use of advanced technology to chop product costs.

One other senior executive at a significant general insurer said during Covid-19, hospitals had raised costs of procedures, but those rates haven’t come down to date. “Right away the strange thing is that hospitals in India don’t have a regulator. That’s crazy and absolutely unacceptable. It’s such a crucial a part of the social infrastructure of this country. Irdai needs to permit us some oversight of the hospitals,” the manager said.

Industry insiders said there ought to be some governance on the way in which hospitals are run and insurance firms must have the power to “blacklist” hospitals which perpetuate fraud cases. Measures ought to be taken to delist hospitals which overcharge patients admitted for treatment with medical health insurance covers, they added.

Advance technologies similar to artificial intelligence (AI) will be used to discover fraudulent cases, where unnecessary medical procedures could have been used for overcharging. Sanchit Malik, co-founder & CEO of insurtech platform Pazcare, said: “Productising underwriting is a significant challenge relating to selling insurance. And with a heavy distribution network and inflated hospitalisation costs, insurance premiums are likely to grow to be higher over time. Technology, when implemented right, may also help bring down insurance expenses. Insurtech firms should definitely take a look at solving for the above two challenges.”

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“For Tier II cities, insurance vendors should take a look at increasing the network hospitals they work with to sell policies at lower premiums,” he added.

Irdai in July empowered insurers to empanel hospitals or healthcare providers, which meet the standards and benchmarks criteria as specified by their respective boards, in an effort to enhance the scope for offering cashless facilities across the length and breadth of the country.

With a purpose to reduce costs for insurers and permit them to make products cheaper, the regulator in August proposed that the utmost commission or remuneration payable under general insurance products, including medical health insurance products offered by general insurance firms, shouldn’t exceed 20% of the gross premium written in India in that financial 12 months. And, the utmost commission payable under medical health insurance products offered by standalone health insurers shall also not exceed 20% of the gross premium written, it said within the notification.


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