According to Economic Survey 21-22, life insurance penetration in India is barely 3.2 percent.
IRDAI is currently exploring enabling life insurers to market indemnity health plans in order to increase life insurance penetration in India. IRDAI has received requests from life insurers requesting authorisation to sell indemnity health plans, often known as mediclaim policies, which provide coverage for unforeseen medical bills.
Previously, life insurers were prohibited from marketing indemnity health insurance products in 2016. Life insurers now market solely fixed benefit health plans, while non-life insurers and stand-alone health insurers provide both indemnity and fixed benefit policies.
IRDAI Health Insurance Regulations
Product offers from life insurers and health insurers were differentiated under IRDAI 2016 rules. Life insurers were permitted to provide long-term individual health plans with tenures of 5 years or more as long as no indemnity health plan was offered and no single premium health plan was supplied via a unit linked platform. The premium for such plans is fixed for a minimum of three years and is only revised if necessary. Individual health plans may be offered by non-life insurance firms as well as SAHI (stand-alone health insurance) businesses for a period of one year to a maximum of three years, with premiums staying constant during the tenure.
Because life insurers provide long-term products such as term plans, they should use long-term pricing and specialise in long-term health products. Customers have several alternatives to select from in this manner. The benefits and drawbacks of life insurers offering health coverage must be considered.
Pros
- If life insurers can create and market health insurance products, health insurance rates might be cut by 5-10%. This will happen gradually, since life insurers will first market non-life insurers’ current health insurance products. Premiums are projected to fall if life insurers are permitted to create their own policies.
- Life insurers may better penetrate consumer niches by using their extensive distribution networks, underwriting expertise, greater discretionary cash, and nimble process and technology. As a result, life insurers are better placed to provide health insurance products.
- When compared to non-life insurance goods, health insurance products may be better combined with life insurance products. It will help make health insurance more accessible to a broader population since life insurers have a far larger client base and a greater number of insurance brokers than health insurers.
- Life insurers that provide health insurance products will make health insurance rates more competitive for the ultimate client, with the potential to introduce more creative components to the market’s health insurance products, such as OPD coverage.
Cons
- It will have an impact on the business of non-life insurers as well as stand-alone health insurance businesses, and IRDAI may encounter pushback as a result.
- It would be difficult for life insurance to create a big network of hospitals and match the claim settlement procedure of stand-alone health insurers.
- Short-term pricing will be another difficulty for life insurers since life insurance policies have longer tenure and lower claim frequency, allowing insurers to profit. Health insurance products, on the other hand, have a shorter tenure and a high claim frequency, which may result in a loss for insurers since the amount spent on claim settlement exceeds the premium generated.
- To serve short-term health insurance products, life insurers will need to build a whole infrastructure.
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Conclusion
Taking into account both the positives and negatives, it is possible to conclude that if both life and non-life insurers work together and use each other’s capabilities, improved penetration with new health solutions may be accomplished. Life insurers have a wide client base and stronger reach in tier-2 and 3 cities due to a high number of insurance brokers operating, but non-life insurers and stand-alone health insurance businesses offer new products, superior claim settlement, and a hospital network. Rather than distinguishing items, combining their strengths is the technique required for a win-win scenario for both. IRDAI is currently examining all options before making a decision.