Heavy Discounts in Insurance to Come Under Scanner

Heavy discounts in segments like group health will soon come under the scanner of Insurance Regulatory and Development Authority of India (IRDAI).With IRDAI asking insurers to maintain higher solvency for segments, such as like health and motor where incurred claims are high, insurance companies will be required to reinvent their business strategies.

As per IRDAI, Available Solvency Margin (ASM) is calculated as the excess of value of assets over the value of liabilities. Solvency Ratio means the ratio of the amount of Available Solvency Margin to the amount of Required Solvency Margin. The higher the solvency ratio, the more financially sound a company is considered to be. The required solvency ratio as per IRDAI norms currently is 150% which is the minimum to be maintained at all times.Discounts on the premium being given in the group health insurance continue to be a source of worry for the general insurance companies. Though the Insurance Regulatory and Development Authority of India (IRDAI) asking insurers to refrain from this practice, high premium-related incentives are still being given. The chief executive of a standalone health insurer explained that several private insurers are exiting or cutting down on this business due to discounts. Companies in the health insurance and general insurance space are also cutting down business in this space due to intense competition in pricing which is often termed unviable.For segments such as health, motor and liability, the insurer will be required to maintain a higher solvency ratio since not only the premiums, the incurred claims are also high.

"Bigger insurers have made pricing so tough that it is difficult for others to offer such rates. Now with the regulator's diktat,these practices would have to discontinue since additional solvency has to be maintained if claims are high," said the head of underwriting at a mid-size private general insurer.

IRDAI had earlier said that industry-wise loss cost must be the starting point and should be considered for pricing a product. It has also said that non-compliance to these norms which included assessing the burning cost will lead to penalties being imposed. However, while this was made applicable to segments like group health from early 2015, insurers said that discounts continue.

Burning cost is the estimated cost of claims in the forthcoming insurance period, calculated from previous years' experience adjusted for changes in the numbers insured, the nature of cover and rate of medical inflation. This is a ratio used by insurers to protect themselves from larger claims that exceed premiums paid.

Experts said that unhealthy competition is eroding the group health space with prices as low as 25-35 per cent less than previous year despite high claims. To retain large corporate clients or to attract them with better rates heavy discounts are offered. Due to this, there is not just transfer of accounts from private to public, but also from one private non-life insurer to the other.The incurred claims ratio in health insurance has seen a rise year after year to about 101 per cent. This means about Rs 101 is paid as claim for every Rs 100 collected as premium.