Note to readers: This story is the second in a two-part series on the decision taken by insurance regulator, IRDAI, asking insurers not to delay or reject COVID-19 claims. This first part looked at how the customers will benefit from this decision.
If FY20 was bad, expect FY21 to be worse. The underwriting losses of the general insurance industry increased by 6.27 percent year-on-year (YoY) to Rs 23,720 crore in FY20. In absolute terms, there was an increase of Rs 1,400 crore, which was a reflection that the premium collected was lower than the claims received.
In FY21, the situation is expected to be far worse for the non-life industry with close to Rs 13,100 crore worth hospitalisation claims for COVID-19 treatments being filed.
The situation is grave because general insurers have been advised by the regulator, Insurance Regulatory and Development Authority (IRDAI), to make claim payments without any delay.
On the other hand, the insurers have been asked to decide on new package rates with specific hospitals for future treatment costs.
“We understand that the customers had filed grievances related to claims delay for COVID-19 hospitalisation. But what about insurers? We have to bear losses on our books due to rules not being followed,” said the underwriting head at a state-run insurer.
The incurred claim ratio for the health segment stood at 85.7 percent in FY20. This meant that for every Rs 100 collected as insurance premium, Rs 85.7 was paid out as health claims. In FY21, it is expected that the claim ratio will exceed 105 percent.
Why are insurers worried?
When COVID-19 cases started rising in April 2020, insurers were suddenly in a dilemma on what needed to be covered. Hospitals started witnessing a steady flow of virus-hit patients since elective surgeries had been put off.
Due to the rise in added costs for infection control measures such as testing existing patients and staff, PPE kits and masks for health staff, hiring new security personnel to enforce social distancing and temperature checks, there was a rise in medical bills
by 15-20 percent over and above regular charges.
Insurers started complaining about exorbitant rates being charged, with claims also being rejected.
Following this, the industry body, General Insurance Council, bought out a standard rate card
that was to be followed for COVID-19 hospitalisation. Here, a fixed rate was to be charged for all ailments, despite the rising number of complaints that hospitals were not following rules.
By then, the claims started to zoom from 50,000 in May to 150,000 in August, now reaching the 870,000-mark. In addition, non-COVID-19 claims also started to pour in as other surgeries began to take place from September 2020 onwards.
Since complaints from customers on non-payment of COVID-19 claims and delays started to increase, the insurance regulator asked insurers to settle claims quickly and renegotiate terms with hospitals later.
This meant that all COVID-19 claims related to hospitalisation (including PPE kits and related
costs) would need to be cleared by the insurers, as per the health policy terms and claim limits.
Insurers said they were the worst hit by this decision. The chief financial officer of a standalone health insurer said that while hospitals do not have any regulatory authority to ensure adherence to rules and pre-decided rates, insurers are being made the scapegoat.
“When hospitals and insurers were told to abide by the standard tariff card for COVID-19, why should only one party suffer? Negotiating rates with hospitals, especially the large branded ones, isn’t an easy task. The health ministry should take a closer look at the hospitals and impose fines on them,” he added.
There is also the fear that higher claims would lead to insurers dipping into their reserves leading to their immediate capital needs.
Said the head of operations at a bank-led insurer: “Public sector insurers will get capital infusion from the government. But what about private insurers like us? This is not an opportune market for fund raising as well.”
Unlike other procedures, COVID-19 hospitalisation meant 7-14 days treatment at a medical institution, which has also proved to be costly for insurers. As against average health claims of Rs 1.5 lakh, COVID-19 claims are close to Rs 2.3 lakh.
What about customers?
While the IRDAI advisory to insurers to settle COVID-19 claims works swiftly in favour of customers, the latter will pay the price for the rise in claims.
Insurance works on a pool concept. So whatever money is collected as a premium is paid out as claimed. If in a year the claim paid out exceeds the premium collected, the excess amount is passed on to customers in the next year in the form of a premium hike.
In 2020 itself, there was close to 25-30 percent rise in health premiums at the time of renewal.
In 2021, a similar hike is expected solely due to the COVID-19 claims received.
According to Abhinav Tiwari, a Mumbai insurance broker, ``a customer who hasn’t made any significant claim may feel the pinch of higher premiums because the health segment has seen a rise in loss ratios.”
He said that even for group health insurance businesses, where multiple people are insured under one policy, the premiums have gone up between 10-15 percent.
Tiwari puts it down to corporate-led health insurance claims, which are also on the rise. Going forward, he predicted that there will not just be a rise in premium for health policies, but also stricter underwriting policies in place.
Moneycontrol had reported how individuals who had recovered from COVID-19, are finding it difficult to buy health insurance policy amidst concerns that the virus may reoccur in them, leading to rising losses.