IRDA Clarifications for Loading on Mediclaim Portability.
Year 2011, Portability in Health Insurance has been the buzz word around the media , the medical insurance policy consumer as well as the Health Insurance Industry. Consumers were happy that they were now free to port their policy from their existing insurer, and move to a better one. Unfortunately, the excitement was short-lived. Insurers, (for reasons discussed further), used many grey areas, to ensure they never accepted any "adverse" (Older Age, Claims in previous policies, Pre-existing conditions etc.) case. It has been a Catch 22, Most consumers who wanted to port policies were people who have had a bad claims experience, on the other hand, Insurers were not interested to take cases where there have been claims experienced in the policy. When you speak to Insurers, they seem to have a reasonable stand. According to them, there is an assymetry in the economic model of portability, given the premium for continuity has been enjoyed by Insurer A, while the claims expected after continuity are settled by Insurer B. Since, denial of portability was barred by IRDA, it was observed, that in case of adverse proposals, Insurers were avoiding portability, by applying a) Loading for adverse proposals or b) additional conditions like copay
Post complaints from customers, IRDA, the Insurance regulator, issued a clarification note, this month, for "loading" on Portability proposals, clearly barring Insurers from adding any additional loading, as a precondition to portability. As per IRDA, the pricing and terms for products filed with IRDA, have already considered the coverage of Preexisting beyond waiting period, and hence there cannot be any additional loading applied on premium, as a precondition to acceptance of portability. This looks like a great win for customers, but in my view, knowing Insurers for almost a decade now, this clarification will only result in increased resistance from Insurers to accept portability proposals. As mentioned earlier, Insurers through the years have realised that 4 years waiting period does not help avoiding claims for pre-existing and in fact, claims do start pouring in after this stipulated waiting period, resulting in huge losses. This is one of the core reasons why Health Insurance Companies are resisting acceptance of risks, and providing credit for waiting periods and exclusions for an ageing customer, without enjoying the benefit of claim-free premiums paid to the earlier insurer. For instance, A customer may have paid premium for say 10 years to an insurer X, and now decides to port to Insurer Y. The new insurer Y, is exposed to risks of a 10 year old policy, without any waiting periods, without enjoying the claim-free premium for the last 10 years. In our opinion, in the long run, there is a need to create a portability pool, where, on portability being accepted by the new insurer, the old insurer deposits a certain share of premium to the pool, when a customer ports out this risk from his book. The new insurer should be partly compensated using this pool. [Source: https://docs.google.com/document/d/1QF0s37-xX98p48Xl3CZES8Nj5ETIE42qqHwY-l7a_M/edit]