5 reasons to cheer for the new regulations

The insurance regulator came out with the Health Insurance Regulations, 2016 on 12 July. These regulations replace the Health Insurance Regulations, 2013. There are at least five important changes in the new regulations that you must take note of. These are

More insurance companies will offer you health insurance policies that cover your loans.

You will no longer be able to buy a health policy from your life insurer.

There will be incentives to buy a cover when you are young.

Firms will be able to launch pilot products.

Data disclosures will get a tad better.

Read on to understand these changes better.

Disability, illness and your mortgage: Loan-linked health insurance policies will become more popular. These policies are offered under the group platform and the new rules have increased the tenures of these plans to a maximum of five years. These can be offered by both health and life insurance companies.

Life insurance companies were already offering policies that could repay the bank if you die before your home loan is repaid.

Similarly, a loan-linked health insurance policy will repay the outstanding amount if you fall ill and can't service the loan.

Shreeraj Deshpande, head, health insurance, Future Generali India Insurance Co. Ltd, said that insurers can now offer credit-linked group health policies for periods that are more than 1 year but less than 5 years. The earlier regulations did not allow group policies of more than 1 year. This was one of the biggest hurdles for offering credit-linked group health insurance products. "These policies can (now) be bought alongside car loans personal loans, consumer durable loans or even home loans if the policyholder is willing to renew the policy every five years.... One could see personal-accident and critical-illness policies being offered in this space," said Deshpande.

Critical illness and personal accident plans are benefit policies that pay a defined benefit upon the insured event. So, a critical illness policy pays up a lump sum if the policyholder is diagnosed with any of the listed critical illnesses, and a personal-accident policy offers financial compensation if the policyholder meets with an accident that leaves her permanently or temporarily disabled.

Life companies cannot offer mediclaim policies: Life insurance companies will no longer be able to offer pure indemnity products. But they can continue to sell benefit policies. Indemnity products, or what you may call mediclaim policies, pay for your hospitalisation. According to the new rules, a life insurer will no longer offer indemnity-based products, neither as individual products nor as group products. All existing indemnity-based products offered by life insurance companies will be withdrawn. Insurers have to phase them out within 3 months. Policies that have already been sold, will continue till their policy term.

"Policyholders will be able to port their policies to other health plans. There wasn't a level playing field as we had to fix our premiums for a minimum of three years, whereas health plans by non-life companies and health companies had annual premiums that could change every year. This made our policies less competitive," said R.M. Vishakha, chief executive officer and managing director, IndiaFirst Life Insurance Co. Ltd. "However, we are happy about expanding the scope of combi- products," she added. IndiaFirst Life currently has a combi-plan with Star Health and Allied Insurance Co. Ltd.

Till now, life companies and non-life companies could offer combi-products, but they could only do so by bundling a term plan with a health plan. Now even a savings insurance plan can be bundled.

Some see this as a missed opportunity. Sandeep Patel, chief executive officer and managing director, Cigna TTK Health Insurance Co. Ltd, said the exit of life insurers will further hit the market for pure health savings.

"With a maximum tenure of three years (only), non-life companies are still unable to offer pure health-savings products, as they do in other markets like the US and Singapore," said Patel, adding, "life insurance companies (too) no longer have the ability to introduce pure health savings products, as they no longer develop and sell health-indemnity products. The combi-product route will require consumers to buy life cover in order to avail any savings-linked health combi-product".

Incentives for early birds: The good news is that the new rules allow insurers to devise mechanisms, or incentives, to reward policyholders for good health insurance practices. The new regulations incentivise: buying a plan young, staying with the plan and maintaining good health. These would, in turn, result in a favourable claims experience for the insurer too. Insurers will, however, need to disclose such incentives upfront in the policy brochures and documents.

Industry insiders say that price incentives can be used in a big way to make people buy health insurance early. But what this will also mean is that a first-time health insurance buyer could end up paying more, compared to someone who is the same age but is only renewing the policy. Currently, price is fixed as per your age.

"The regulations do not explicitly allow price differential, but this is something we may try through pilot products. We hope to get better clarity on whether we can build in price incentives for early buyers of health insurance," said Patel.

Pilot projects for innovative products: The other big positive for the non-life industry is that it can test products with pilot projects. Insurers can now launch closed-end products, with a policy term of 1 to 5 years, so that insurers may innovate and also think about covering risks that have not been covered till date.

The new regulation says: "After five years of launch of the pilot product, the product needs to get converted into a regular product or based on valid reasons may be withdrawn subject to the insured being given an option to migrate to another product subject to portability conditions".

This will give the industry the flexibility to discontinue some of the products. "The rules state that health insurance is renewable for life. This makes insurance companies cautious in terms of what they offer because they will have to renew it for life. Pilot testing the product offers us flexibility to test newer products and insure different types of risks. I see a lot of innovation in the disease-specific insurance plans as a result of this," said Puneet Sahni, head, product development, SBI General Insurance Co. Ltd.

Data disclosure for more transparency: While this may not impact you directly, but the new regulations will improve data disclosure just a little bit. This should bring in more transparency.

In health insurance, unsettled claims are divided into two categories: claims repudiated and claims closed. A repudiated claim is self-explanatory, but insurers draw up another category called closed claim. These are claims that couldn't be paid for lack of documents or follow-up from the policyholder. So insurers can show a low percentage of claims rejection, if the number of closed claims was very high. According to the new rules, a claim can't be closed in the books of the insurers.

"The concept of closed claims doesn't really exist in most private medical insurance markets around the world. Clubbing closed claims with the rejected claims should provide a better and more precise picture of claims settlement," added Patel.

The other aspect of data disclosure that needs improvement is segregation of health insurance claims data by retail and group portfolios. We have been advocating better data hygiene because combining the data of these two portfolios distorts the real picture.

A higher percentage of group policies may mean better claims settlement experience because group policies have a low rejection rate. The exposure draft Insurance Regulation 2016, which came out in January this year, had also asked insurers to report claims data on the product level. This would have helped in understanding the claims pattern of health insurance plans. The product-level disclosure may see the light of the day in the final product filing guidelines, suggest some sources in the industry.

The new regulations certainly kick off some exciting opportunities for the industry in terms of creating innovative products, incentivising early birds and designing credit-linked health plans.

In arrangement with HT Syndication | MINT

This article was originally published on July 29, 2016.